Seven Group’s WesTrac holds line on profit, dividend

Billionaire Kerry Stokes’ Seven Group lifted annual earnings thanks to strong growth from its mining machinery supplier WesTrac.

Seven Group managing director and CEO Ryan Stokes. Picture: Jane Dempster.

Billionaire Kerry Stokes’ conglomerate Seven Group hopes its stake in Boral will in time deliver returns on a similar scale to mining machinery supplier WesTrac, as it eyes greater exposure to infrastructure on Australia’s east coast.

Seven has spent $651m building up a 16 per cent stake in Boral but analysts remain cautious on its bet, questioning whether funds should instead be deployed on its existing businesses such as WesTrac, which helped lift its overall group annual earnings by 2 per cent.

Asked if Boral could hope to achieve WesTrac’s return on equity above 20 per cent, Seven chief executive Ryan Stokes said he saw huge potential in the construction materials supplier as it re-tilted towards Australia.

“We have a viewpoint that a 20 per cent dynamic in their Australian business should be possible,” Mr Stokes told analysts on Wednesday. “And we see opportunity for that business to perform at that level and that would be our ambition over time. The Australian business presents an opportunity to drive returns comparable to that.”

Boral’s US exposure holds less appeal for Seven than its Australian unit, with the conglomerate thought to be open to a potential divestment to unlock value for investors, particularly after it took a hefty $1.2bn writedown on Monday underlining the loss of value in the US business.

“We see a focus on how they can unlock that value will be important and I think then they will look to probably rationalise areas that aren’t going to deliver that type of return.”

Seven lifted annual earnings by 2 per cent thanks to strong growth from its mining machinery supplier WesTrac. But it withheld guidance for the 2021 financial year due to COVID-19 related economic volatility.

On an underlying basis, earnings before interest and tax rose to $740m from $728m, with the bulk of the boost derived from WesTrac, which offset flat earnings from Coates Hire and a fall from its energy unit as the oil market crash hit.

The company had previously expected underlying EBIT to grow by the high single digits, but withdrew that guidance in April due to volatility from the pandemic.

Underlying net profit after tax rose 3 per cent to $474m, beating a UBS estimate of $442m.

Earnings from WesTrac jumped 22 per cent to $371m, Coates increased 1 per cent to $204m and its energy division sunk 19 per cent to $127m. Its media division earnings also went backwards, falling 25 per cent to $48m for the 12-month period.

Seven Group executive chairman Kerry Stokes. Picture: Hollie Adams

Seven noted recent contract wins at WesTrac, including projects with all the major iron ore miners, who are cashing in on high prices and strong volumes.

Group revenue of $4.572bn was up 12 per cent on last year, while an annual dividend of 21c per share was in line with a UBS forecast and steady on last year’s payout.

Its statutory earnings were hit by $382m of writedowns, including $358m already disclosed to the market on Seven West Media and its Bivins Ranch oil and gas deposit in Texas. Statutory net profit after tax fell 42 per cent to $116m, reflecting impairments.

Seven Group owns a diverse range of Kerry Stokes’ interests, including 41 per cent of Seven West Media and Caterpillar dealerships in NSW, Western Australia and the Australian Capital Territory. In 2017 it took control of Coates Hire after buying the remaining 53 per cent of the business from private equity fund Carlyle.

It also owns a 30 per cent stake in South Australian oil and gas producer Beach Energy.

Seven Group shares fell 0.6 per cent to $19.07.