What is a holding company? This structure is used by a number of well known public companies. Here’s what you need to know.
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A holding company is designed for one specific purpose – to purchase and hold shares in other companies. Whereas a normal company is formed to provide products and services to clients, a holding company essentially ‘outsources’ that. This type of company will own assets in other companies, which then provide products and services to the public.
So, what does this mean for investors?
Buying shares in a holding company means that you are essentially accessing a number of other companies. This gives you exposure to multiple securities through a single purchase.
Exchange-traded funds (ETFs) offer a similar style of investing. Just as an ETF holds multiple shares inside a fund, a holding company holds other securities.
Today, I’m looking at two well-known companies on the ASX that are both considered to be ‘holding companies’. Although they have slightly different investment strategies, both are interesting case studies.
Premier Investments Limited (ASX: PMV)
According to the company, Premier Investments was created for the following reason:
The company was established as an investment vehicle to maximise growth in capital returns to shareholders. This is achieved through the acquisition of controlling or strategic shareholdings in premier Australian companies. A particular focus is given to retailing, importing and distributing.
You can see here that Premier was entirely created to invest in other companies. This is usually the main strategy of a holding company.
What does Premier Investments own?
Premier Investments wholly owns the retail conglomerate The Just Group. If you aren’t familiar with the name, you might recognise the brands. The Just Group owns and operates the following popular retail brands:
- Peter Alexander
- Just Jeans
- Jay Jays
- Jacqui E
Premier Investments obtained a controlling interest in the shares of Just Group Limited in 2008. This came after an off-market takeover offer, which saw Premier purchase 100% of the shares. Just Group Limited was removed from the ASX after this occurred.
Additionally, Premier Investments owns 28.06% of Breville Group Limited, another well-known Australian brand. Breville Group is a leading provider of small electrical appliances. Breville was founded in 1932 (during the Great Depression) and was originally known as ‘Breville Radio’!
Breville’s brands include:
- Sage by Heston Blumenthal
- Distribution of Ronson and Philips products.
The Premier Investments share price
The Premier Investments share price is up more than 20% in 2020. However, during March this year, it crashed hard as a result of COVID. The share price fell from $21.61 down to as low as $8.07, representing a catastrophic drop of 62%.
Premier has since recovered strongly from this initial setback – not only did it recover lost ground, but exceeded it. The company created new all-time highs in October this year and has managed to stay above those levels since then. In fact, from the lows in March of $8.07 to today’s price of $22.76, Premier has risen more than 170%!
One thing to note is that Premier Investments delivered strong financial results this year, in spite of COVID. This has helped to move the share price in a positive direction.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
According to the company, Soul Pattinson (or ‘Soul Patts’) was created for the following reason:
WHSP is a significant investment house with a portfolio encompassing many industries. These include its traditional field of pharmaceuticals, as well as mining, building materials, property investment, telecommunications, financial services and other equity investments.
Soul Patts certainly has a much broader scope than Premier, but the concept is very similar – it’s also a company designed to invest in other companies.
What does Soul Pattinson own?
Soul Pattinson owns a wide range of investments, many of which are ASX listed companies:
- TPG Telecom Ltd (ASX: TPG)
- TPG is an Australian telecom provider, Soul Patts holds 25.3%.
- Brickworks Limited (ASX: BKW)
- Brickworks is group of companies in the construction space, Soul Patts owns 43.9%.
- New Hope Corporation Limited (ASX: NHC)
- New Hope is a diversified energy company, Soul Patts owns 50%.
- Australian Pharmaceutical Industries Ltd (ASX: API)
- This company is a leader in health and beauty, Soul Patts holds 19.3%.
- Bki Investment Co Ltd (ASX: BKI)
- BKI is a listed investment company, Soul Patts owns 8.6%.
- Round Oak Minerals (private company)
- This is a mining and exploration company and is wholly owned (100%) by Soul Patts
- Milton Corporation Limited (ASX: MLT)
- This is another listed investment company, of which Soul Patts owns 3.3%.
- Apex Healthcare Berhad (KLSE: AHEALTH)
- Apex is a leading healthcare group based in Asia. Soul Patts owns 30.3%.
- Palla Pharma Ltd (ASX: PAL)
- A manufacturer of narcotic raw material, of which Soul Patts owns 19.9%.
- Ampcontrol Pty Limited (private company)
- An international electrical supplier, Soul Patts owns 43.3%.
- Clover Corporation Limited (ASX: CLV)
- Clover is a “bioactives” provider in the health space. Soul Patts owns 22.6%.
- Pitt Capital Partners (private company)
- Pitt is an independent corporate advisory firm, wholly owned (100%) by Soul Patts.
The Soul Pattinson share price
The Soul Pattinson share price is up more than 35% in 2020. The market has largely become unpredictable this year due to the impact of the COVID pandemic, however, the Soul Patts share price is somewhat hedged given the company’s broad portfolio. Additionally, three of Soul Pattinson’s holdings are private and largely unaffected by the stock market.
Comparing Premier Investments and Soul Pattinson
In terms of their structure as holding companies, the main difference between Premier and Soul Patts is the type of shares they hold. Additionally, their investment strategies vary.
All of Premiers holdings are completely private – that is, they don’t trade on a public exchange. The company also has a strong retail focus with The Just Group and Breville.
The majority of Soul Pattinson’s holdings are in publicly listed companies from a broad range of sectors. Soul Pattinson has a similar structure to Berkshire Hathaway, Warren Buffett’s company, which also has broad holdings, many in publicly listed companies.
A holding company is an interesting concept and one which both Premier and Soul Patts have embraced. Each style of holding has a certain agenda. Therefore, it’s worth doing some deeper research to see what might align with your investment strategy.
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glennleese owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, Premier Investments Limited, and Washington H. Soul Pattinson and Company Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.