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The secrets of Australia’s Berkshire Hathaway

Last year, I wrote of ASX stocks that have stood the test of time. It included some of our oldest businesses and how they’ve managed to not only endure but thrive.

I followed up with a piece, 16 ASX stocks to buy and hold forever. Only three stocks featured in both of these articles, and one of them was Washington H. Soul Pattinson (ASX: SOL), or Soul Patts as it’s known.

Thinking of Australia’s greatest ever investors, names like Greg Perry, Erik Metanomski, David Paradice, and Kerr Neilson naturally spring to mind. Yet, Soul Patts’ Robert Millner and his uncle, Jim, should be in the conversation too.

It’s true that Soul Patts isn’t a pure investor. It’s a business operator as well. In that, it’s more like an investment conglomerate, not dissimilar from Warren Buffett’s Berkshire Hathaway.

Soul Patts’ track record is outstanding. Over the past 20 years, it’s returned 12% per annum (p.a.), easily beating the All Ordinaries Index. $100,000 invested in the company in 2004 would have turned into $869,000 today, more than double the amount you would have earned from investing in the All Ordinaries over that period.


Source: Soul Patts’ investor presentation

Soul Patts has paid a dividend in every year that it’s been listed, going back to 1903. It’s also increased its dividend for 24 consecutive years. If the company increases its dividend again this year, it will become Australia’s first-ever Dividend Aristocrat – a term from the US given to companies that lift their dividends each year for 25 consecutive years or more.


Source: Soul Patts’ investor presentation

Exactly, who is Soul Patts?

The company began life as a pharmacy in 1872. It’s then that Caleb Soul opened the chemist in Pitt Street, Sydney. In 1886, Lewy Pattinson opened a pharmacy in Balmain. Caleb and Lewy became friends and in 1902, Washington Soul bought out Pattinson and a year later, listed on the Sydney Stock Exchange.

In 1903, Soul Patts had 21 pharmacy stores. By the time of World War Two, it dominated the retail pharmacy market and it also had manufacturing and warehouse facilities.

Jim Millner, who’d been a prisoner of war in Singapore, transformed the business from a pharmacy into an investment powerhouse in the 1960s and 1970s. He made numerous mining investments, which eventually culminated in the purchase of New Hope Collieries, now known as New Hope Corporation (ASX: NHC). He also bought a cross shareholding in building materials company, Brickworks (ASX: BKW). In the 1980s, the company bought NBN Television Station, which eventually turned into TPG Telecom (ASX: TPG).

In 2021, Soul Patts made its biggest play in financial services via a merger with listed investment company, Milton Corporation.

Robert Millner has been Chairman of the company since 1998, and as Lewy Pattinson’s great grandson, is the fourth generation of the family to manage Soul Patts.

Today, the company is an $11 billion giant with a diverse portfolio of assets. About 40% of the net asset value is in three listed companies, Brickworks, TPG Telecom, and New Hope. The company has a 43% stake in Brickworks, which in turn owns 26% of Soul Patts. It also has a 13% interest in TPG and 39% interest in New Hope.


Source: Company, Flourish

Besides these long-term strategic holdings, Soul Patts also has close to $3.2 billion in private equity, credit and ‘emerging companies’. Among its more interesting private holdings, it continues to build out luxury aged care accommodation, partnering with the Moran family. It’s also endeavouring to roll up swimming schools across the country through a business called Aquatic Achievers.

Ingredients to its success

I think there are six secrets to Soul Patts’ success since listing 121 years ago:

Be opportunistic. If I had to describe the company and Soul Patts in one word, it would be opportunistic. It invests where it sees opportunity and where the odds are stacked in its favour. And it’ll look at any asset, even overseas, if it makes sense.

Always have cash on hand. To be opportunistic, it’s important to not take on too much debt and to always have cash on hand, so you can move when the time is right. This is a guiding philosophy of Soul Patts and it’s a key reason why it's been able to quickly move on acquisitions.

Partner with great people. Soul Patts seems to choose business partners better than most. It recognizes it’s often not an expert in a field, and it’s not afraid to partner with someone who is. A classic example of this is the partnership with David Teoh and TPG, which has been immensely profitable for both parties.

Don’t be afraid to be unpopular. There have been two major controversies for the company. The first is the cross shareholding with Brickworks. The company has had to fight off the likes of Ron Brierley and Perpetual to retain this arrangement. The second controversy has been with its ownership of New Hope. Anti-coal advocates have targeted Robert Millner, who’s held steadfast on the continued need for coal to help meet the world’s electricity needs.

An investor and operator. Robert Millner considers himself an investor first, and an operator second. Both have been important to his success. Soul Patts has board positions on most of the companies in which it invests, and provides advice, and capital for acquisitions when needed.  

Luck. Yes, everyone needs a slice of luck, and Soul Patts has had its share. The property that it owned via Brickworks has turned into a bonanza. As has the agriculture holdings, the value of which have risen well beyond the company’s wildest expectations. To get this kind of luck though, you must be in the game, and Soul Patts has certainly done that.

Opportunities and challenges

Soul Patts has cash, connections, and a good reputation, which means it has the advantage of business deals coming to it, more than it having to go out to hunt for acquisitions. The company is keen to build out its private assets, as well as luxury aged care. Given recent moves with Perpetual, there’s also scope for more transactions in financial services.

There are some challenges for the company too. The first is that Robert Millner is 73 and that means someone else may soon take over as Chairman. Who that is will be decided by the Board, but the big question is whether the success of the company can extend to a fifth generation of the family.

The other challenge is one that’s less talked about, and that’s size. Soul Patts has a relatively small team overseeing $11 billion in assets. If it keeps growing, managing those assets will become more complex, which potentially increases the chance of errors.

Size tends to make it harder to generate returns. It’s easier to make $12 from a $100 investment than it is to make $120 million from a $1 billion investment. 

 

James Gruber is Editor at Firstlinks and Morningstar.

 

24 Comments
CC
June 27, 2024

I think Wesfarmers is a better version of Berkshire

Lindsay H Moore
July 05, 2024

I do not see Soul Patts and Wesfarmers as competitors for a place in any sound long term portfolio, to me both are in the first three picks category. The third of those picks, in my judgment, is Infratil. Each of the three follows a rather different model but each has long made their particular approach work. There is very little investment overlap among them. Building a portfolio with all three as the foundation choices gives broad but carefully chosen diversification from the outset. Keeping adding to them at the same time as bringing into the portfolio more narrowly based companies is, in my experience, a sound and rewarding approach which avoids the passive investment problem of being controlled by "Mr Market" and his bi-polar mood swings. To me those three companies are multi-generational investments to be added to through good times and (particularly) bad.

CC
July 13, 2024

but Infratil has consistently very poor ROE.
over the past 10 years, it has only once exceeded 5% ( 7.8% )

Tom Taylor
June 11, 2024

What I really admired about Jame and Robert Millner is how they they put their thumbs on their noses and wiggle their fingers (cocking a snook), when the corporate cowboys, global warming doomsayers, or politically correct subset have a fit.
I have followed Washington Soul Patt since the early 80's. I only purchased them a few years ago when the state and federal governments actions with investment properties convinced us that the soverign threat was destroying what had been a brilliant investment through super.
Because of watching the Millner's reaction to the goody two shoes with regards to coal that compelled us put a significant amount into Yancoal and have been rewarded with dividends of 22% and 13% the last two years.

Lindsay H Moore
June 10, 2024

Am puzzled by one aspect of the article. My understanding is that the Pattinson family bought out the Soul interest, not the other way around. The Millners are Pattinson descendants. I have always understood that the buyout was partly financed by the stock exchanged flotation. If I am wrong on any of those points then correction please.
I am a satisfied long term WHSP shareholder, but a little worried by its staff buildup over recent years. That is where the comparison with Berkshire Hathaway falls down as WHSP has many more times the staff per billion dollars invested that B-H has or is ever likely to have. That to me indicates a risk of descent into too much wheeling and dealing rather than very carefully considered investment choices followed by letting time and prudent but forceful management do its work.

howard musgrove
June 09, 2024

I had the privilege of working for Jim in the 50's (when was that?) with conversations, although fairly brief due to time restrictions, were always very casual, with comments from me on his white Peugeot, a rare but loved beast at the time.
Yes, I am a shareholder and yes, he had lino on the floor of his office. A no waste attitude lost in today's affluence?

Ian
June 09, 2024

SOL pharmacy the innovator. In 1973 we arrived from UK and I worked for the ICL data bureau. One of my jobs was SOL's stocktake. We had a state of the art mark sensing card reader, which no-one to my knowledge had ever used (punched cards were still the thing, but these cards just had to be marked with a pen or pencil.) SOL's stocktake would have cost a fraction as there was no data prep required.

James L
June 07, 2024

A good story, James, that attracted some interesting (and slightly different) reactions!
Certainly, a great company with a stirling record that I’ve watched for over 20 years.
Was happy to buy more last week at $32.
Could have done a bit better this week but no regrets ;-)

CL
June 07, 2024

You missed a factor that made the entire history of the company possible. Your article was a blast from many decades past, when corporate success was routinely attributed solely to men by men as a matter of course.
No prosperity has actually been achieved by men alone. What is more, modern wealth is no longer controlled by men alone - and as male boomers die it will be female boomers who briefly gain full control of the bulk of Australian wealth - and decide what to do with it.
Here how it all got started in reality.
The domestic servitude of dozens of women family members of the men who led the original two pharmacy chains and the merged and listed result freed those men to do nothing but work for profit by day and rest comfortably at home by night - dinner, pipe, slippers, pat children on head, bath, bed.
Tens of thousands of women staff worked insecure (part time / fixed term / casual) jobs at SP pharmacies under male managers, without benefits or promotion, which kept labour costs down.
Millions of women customers were convinced to pay the exploitative ‘pink tax’ (inflated prices for slightly feminised versions) for toiletries and other daily necessities, padding profits, even in downturns.
And even now - when key women leaders whom you fail to credit in your article have made critical, direct contributions to SP’s corporate success - variations of these four female contributions (familial, employee, consumer, executive) are still the wind beneath the wings of all listed companies that are an attractive investment.
It’s 2024.
Thoughtless, anachronistic gender washing is not good enough for a Firstlinks article - and it does the investment advisory sector no favours either.

James Gruber
June 07, 2024

Hmm, I think this is a little strong CL. After all, the company is fourth generation family owned and the leaders of the business have been all male. Though women have undoubtedly helped the company.

Does this mean that all articles on Warren Buffett, for instance, talking about his investment prowess should also mention his employees and the contribution they've made?

James

david edwards
June 07, 2024

It's not about gender, it's about financial competence.

Margaret Clarke
June 25, 2024

I find your comments totally inappropriate CL.... We should all display respect for management skills accordingly.

Manny
June 07, 2024

SOL please introduce a DRP as soon as possible !
Manny

Kevin
June 07, 2024

There's a mistake I made at the turn of the century ( doesn't that look impressive).Thinking companies must have a DRP.

If you like the company just buy on market after the XD date.The DRP price will be a 5 or 10 day volume weighted average ,so you'll still get them at around the DRP price.Put in a few more $$$ if you have any spare,shareholding builds up quicker. Carry the mismatch from XD date to when they put the divi money into your account.

The company I owned went from around $3 up to $15.Then I saw the obvious,perhaps 10 years after I should have seen it .Still having a laugh at myself about it now.

Brokerage is cheap now,it was a bit more expensive back then

Waiting and wishing they would start a DRP.

Luke
June 07, 2024

SOL, a great success story who consistently hits the mark. I’m aware of an investor who has the bulk of his investments in SOL, averaged $5/ share. Made him a lot of money. Almost getting $1 in dividends per share now. A great company. I don’t own any.

Peter
June 06, 2024

Drawing a very long bow to compare SOL with Berkshire.
How many shares does the author own/

James Gruber
June 06, 2024

None now. Have owned in past, and will in future. So, if you're suggesting I'm biased, I'm not. I'm hoping the price goes down rather than up!

Kevin
June 07, 2024

Perhaps that Tom Petty song James. Co written by Charlie Munger?

The waiting ( is the hardest part)

James Gruber
June 07, 2024

Don't mind some Tom Petty, Kevin.

Ronald
June 09, 2024

So I'm curious you weren't tempted to hold a great company forever?

Kevin
June 06, 2024

I nearly bought it during COVID ,but I had an Australian BRK in Wesfarmers.I can see the subtle differences between them now. I think it was down to around $19 or $20 a share.The COVID crash.You don't know how long that will last so the doubt is always there.

Events happen,NAB come up with a capital raising at ~ around $15. I slightly open the door to let a bit of noise in.The experts are saying this is terrible.Close the door,do the opposite to what they want me to do.Wasn't confident in NAB but the offer is take it or leave it,we aren't waiting while you make your mind up.Wouldn't it be good if the "experts" gave further clarification. Excess cash taken up there.

Then ANZ come up with $19 a share, raising capital to buy Suncorp.I'm not confident in ANZ either.No door open to let noise in.Coffee and a Tim Tam and take up the full offer Do it,they are not going to wait for me.

I checked Sol Patts,it was up to around $28,missed it .

Ukraine war comes,here we go again. CBA and WES and 1 or 2 others look so tempting.Just do it,the Nike investment plan.Looking at S/Patts never crossed my mind.

Hopes rise,the name escapes me but they took over BT ( Pendal).S/Patts might take over ? that I own. Still waiting . Destined never to own S/Patts the way things are going.

What a 5 years,don't know how frightening it was if the door was open to let the noise in. Watching paint dry was exciting enough for me..

A bored cantankerous old bugger waiting for the rain to stop to get out on the bike

Kevin
June 06, 2024

Somewhere amongst that lot Mac bank had a capital raising @$191 .I like them,take the full $30K there. Then they go down,average down there,I'm confident in Mac Bank .

Then CSL have a raising to take over ? the Swiss company.Not sure at all,markets are falling and the bargain begins to look not quite the bargain I bought.If it gets down to $240 I'll average down, in at @~ $242 and it takes off .Then is range bound $270 to $300,how long will this last.? An excellent shareholder update at the upper class hotel in Perth where they had it.I'm impressed because they have have a place to park my bike and lock it up .They look dubious,this tramp on a bike has shares in CSL.I've got the paperwork to get in so I'm in .
Everybody comes out of the meeting/ update and the impression is WOW .I forget the name of the lady director on the podium,the update,the future plans,I'll take questions now.I think everybody fell in love with her,we've got a genius,here..I ride home buzzing.

Still,bored,still raining,still cantankerous.Start doing some tax form preparation?

Might just put the waterproof gear on.

Kevin
June 07, 2024

Perpetual took over Pendal.The name came to me. They are going through gyrations now .Somebody gets the name,I might get some money.Whatever is going on there they seem to be on the path of tie ourselves in knots,try to make it as complicated as possible,and don't tell anybody what is going on .I wonder if "they" know what is going on.

Two still to be sorted out ,Virgin Money ( spun/ thrown ) out NAB,slightly increases NAB returns over a decade.God knows how fast the UK regulators will say yay or nay on that one .

Then CSR,great company to own for 30 years that one .They kept selling bits of the company off and putting money into the bank account,1 or two capital returns, and the final sale @ $9 a share when it happens.

Lyn
June 08, 2024

Kevin, like your posts as they read like a diary of my unremembered thoughts from yesteryear and think...oh yes, of course.
So carry on being a BCOB on a bike as per your words, watch the pesky motorists won't you

 

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