Brickworks shares are rising after giving a FY21 profit update.
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Earlier today, Washington H. Soul Pattinson and Co. Ltd gave an update about its consolidated regular FY21 profit expectations. Soul Patts expects regular profit to be in the range of $316 million to $336 million.
Brickworks noted that this will have a flow on effect to its reported consolidated net profit after tax for FY21, through its equity accounted profit of its 39.4% shareholding in Soul Patts.
The uplift for Soul Patts is expected to add to Brickworks’ statutory after tax profit in the range of $64 million to $72 million.
Brickworks said these figures are preliminary and subject to audit.
What was in the Soul Patts’ profit update?
The investment conglomerate said that its key drivers of success are growth in the capital value of the portfolio as well as a growing yield. Earnings are not considered to be a key indicator, but there has been a range of factors that have had a material impact on the profit:
New Hope Corporation Limited (ASX: NHC) disclosed in its quarterly report ending 31 July 2021 that it expects earnings before interest, tax, depreciation and amortisation (EBITDA) to be $372 million for FY21. This is primarily as a result of thermal coal prices being at a 10-year high.
Soul Patts also said that Brickworks’ own trading update highlighted that it expects record earnings from its property division, driven by the continued increase in the value of the property trust.
The third and final positive from the Soul Patts update was Round Oak, a base metal mining company, which is wholly owned by the investment conglomerate. Round Oak expects to generate a regular FY21 net profit after tax in the range of $64 million to $68 million. This was described as a “significant improvement” on the FY20 loss of $43 million as commodity prices, being mostly zinc and copper, improved and the company moved from development to production at a number of its mines.
However, these higher profit contributions will be offset by a lower contribution from TPG Telecom Ltd (ASX: TPG). Following the merger of TPG and Vodafone in July 2020, Soul Patts no longer equity accounts it share of TPG’s net profit after tax. Soul Patts only received one dividend from TPG amounting to $18 million in FY21, compared to the equity accounted profit of $72 million in FY20.
Soul Patts also noted that the statutory profit in FY21 will be materially lower because FY20 included a one-off accounting gain of $1.05 billion after the derecognition of TPG as an equity accounted associate. That large one-off gain will not be repeated in FY21.
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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended TPG Telecom Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.