A word of advice from one of Australia’s most experienced investors

Hoard your powder and keep it dry. That’s the key message from billionaire Robert Millner, Chairman of Washington H Soul Pattinson (WHSP), for investors in response to COVID-19.

“If I can give a little bit of advice: I think everybody should keep as much cash as you have. Be patient and keep well.”

Millner kindly responded to questions from Livewire Markets following WHSP’s 1H20 results, in which the diversified conglomerate declared a 4.2% boost to its interim dividend, marking the 22nd consecutive annual increase to shareholder payouts.

Caption: Robert Millner, Chairman, WHSP

Since 1984, Millner has steered WHSP through multiple shocks including the 1987 crash, 1991 recession, the dot-com bubble, the global financial crisis and eurozone debt crisis (to name a few).

He said financial markets are in uncharted waters not only due to the virus but also zero-interest rates globally, noting that “no-one who’s alive at the moment has been in an environment with interest rates as low as they are.”

“What concerns me is the financial impact this is going to have particularly on our workforce and people’s livelihoods. I don’t know if enough thought has been given to the consequences of what could happen,” he said prior to the government’s announcement of a $130 billion wage subsidy package.

Regardless, Millner was worried about the explosion in consumer, corporate and government debt that would accumulate due to the situation and the subsequent knock-on effects.

“How do we repay all the massive amount of debt that’s going to build up? A lot of companies, a lot of governments have had far too much debt before this situation has arrived. To me that’s a great concern.”

Positioned defensively

The bulk of WHSP’s portfolio was positioned defensively, with its core investments in telecommunications (via TPG), pharmacies (through the Soul Patts chain) and long-lease industrial properties (through Brickworks) weathering the storm and seeing business boom. Further, thermal coal prices and demand have been resilient, supporting its investment in New Hope.

As such, he was confident that cash generation would support the company’s ability to pay growing dividends.

“We'll always outperform in periods like this and we’ve got very good people running these businesses. These businesses are not stretched with debt.”

While Millner was pleased that the Federal Court ruled that the TPG and Vodafone merger should not be blocked on competition grounds, he expressed frustration at the number of roadblocks that merger deals have to undergo before all the boxes are ticked. He pointed out that Foreign Investment Review Board approval would likely add around two more months to the process.

“This is one of the biggest problems we’re all facing in Australia. The delay and the inaction of bureaucrats and governments to get on and get business rolling.”

Ready to pounce

Millner said that while asset valuations were racing away in 2019, largely unsupported by growth in company earnings, WHSP remained cautious, and has positioned itself to have the financial capacity to make new investments during a market correction.

He wouldn’t say if any particular sector of the market had piqued his interest, but mentioned the desire for “cash-generating businesses run by good people”.

In October 2019, WHSP formed a partnership with Provectus Care, an aged care and retirement living operator, to build and operate luxury independent living accommodation for retirees. The company has committed to fully fund the acquisition of its first site in NSW for $39 million.

“We’re very bullish on this market, particularly at the top end - there’s a drastic shortage of very good facilities. I think this is an area where we can go leaps and bounds and we’re very confident.”

In 2H19, the company also spent $100 million acquiring a portfolio of land and water-based agricultural assets across Australia. The portfolio produces a range of commodities including citrus, macadamias and cotton and is part of Millner’s view on Australia’s as a food source for the world.

But one area WHSP won’t consider is investing in renewables.

“We’ve got our plate full of our coal mining investments. We’re very confident of that going forward. As we speak today we’re still building coal fired power stations around the world, so we’re very confident in the future of Australian thermal coal.” 

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