Kerry Stokes’ Seven Group growth could top 10pc despite volatility
Seven Group has forecast higher earnings growth but warned economic headwinds and a dysfunctional energy market may introduce a new volatility in 2023.
Seven Group has forecast higher earnings growth but warned economic headwinds and a dysfunctional energy market may introduce a new volatility in 2023.
The conglomerate, controlled by billionaire Kerry Stokes, delivered an 8 per cent rise in annual earnings due to mining, energy and infrastructure growth and tipped an earnings lift which could top 10 per cent for the current financial year amid strong demand among its string of diversified businesses.
However, rising inflation and interest rates and the possibility of a recession could still dampen sentiment across Australia’s economy.
“In short, yes we think the risk of a technical recession is high but the risk of a structural slowdown we’re not probably as concerned about given the long-dated nature of our activities will probably still flow through,” Seven Group chief executive Ryan Stokes told The Australian.
Seven Group offers an insight into multiple strands of the economy through its heavy machinery operator WesTrac, Coates equipment leasing business, Seven West Media, a 30 per cent stake in Beach Energy and, most recently, construction materials with its Boral buyout.
While households built up savings buffers through the pandemic, a hit from higher interest rates on spending may not flow through until later this year or early 2023.
Homeowners who took advantage of record low fixed rates could be slugged with a 40 per cent increase in repayments when they expire although the central bank believes they can cope after accumulating some $260bn in savings during the pandemic.
“There is real uncertainty around that rate dynamic and the impact longer term,” Mr Stokes said. “That rate movement has a lag effect in the economy of three to six months and so we haven’t really felt the impact of the first rate rise. That will take some heat and growth out but we’re still confident in the underlying activity.”
Boral – two-thirds owned by Seven – expects a housing slump to accelerate in the second half of the financial year amid a downturn as soaring energy costs force it to slug building materials customers with the largest price jump in five years.
Seven’s 2023 guidance looked to be on the conservative side, according to Credit Suisse.
“Guidance for high single-digit to low double-digit underlying earning growth is below what we believe the company will achieve in FY23,” Credit Suisse said.
“However, it is consistent with management's pattern of being conservative and we believe this will have been heightened. Overall this is a good result – and while guidance is lower than where our numbers are – we do not see this as a concern for FY23.”
Seven has a unique perspective on the national energy crisis with its businesses like Boral under the pump from soaring bills while it also cashes in through its exposure with Beach Energy.
Mr Stokes said stability was urgently needed in the market.
“We’d like to see stability in that electricity market because where prices have been is a fundamental challenge to business. Boral (is) probably more impacted by that,” Mr Stoke said.
“To see electricity prices spike the way they have shows it is not a healthy market. There’s probably a greater role in holding producers to account to deliver critical assets and infrastructure.”
Seven Group’s earnings rose 8.3 per cent on a pro-forma basis to $987m while underlying profit jumped 14 per cent to $577m for the 12 months to June 30. Investment in WesTrac to support growth and dodge supply chain snags saw its operating cash flow fall 17 per cent to $512m.
Trading revenue rose 65 per cent to $8bn. WesTrac earnings rose 6.3 per cent to $425m while Coates saw its earnings rise by 16 per cent to $246m.
Boral’s earnings sagged by a third to $107m as it battled poor weather and high energy costs, while energy surged 50 per cent to $153m on stronger oil and gas prices. Media earnings were up by 39 per cent to $79m.
Seven Group will pay a fully franked dividend of 23c a share, unchanged on last year.
The conglomerate, which is also the biggest shareholder in Seven West Media, said 2023 underlying earnings from continuing operations will be up by high single to low double digits.
Kerry Stokes stepped down as chairman of Seven Group in August in a major change of the guard in corporate Australia following the company’s audacious takeover raid on Boral.
Seven Group shares rose 2.15 per cent or 38c to $18.08. They have fallen 19 per cent this year.
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