What is the stock?
Seven Group Holdings (SVW).
Seven Group is largely a holding company with substantial investments across Industrial services, energy and media. Many would recognise its key investments in WesTrac (mining equipment solution company), Coatshire (equipment hire company) and Seven West Media (Channel 7 and The West Australian). Its investment portfolio also includes stakes in Beach Energy, Estia and other media and property assets.
What do you like about it?
We like Seven at this point of the cycle as it offers exposure to growth in east coast infrastructure investment through Coatshire and it is leveraged to a meaningful pickup in Australian mining capital expenditure via WesTrac.
How do you rate its management?
While a lack of transparency and a complex structure has been the deterrent for most investors for many years, in the past 12 months the management team has made concerted efforts to lower the barrier by increasing its free float and simplifying its corporate structure.
Strong top line growth is expected to drive substantial improvement in profits through operating leverage, especially after many years of tight cost control. For the first time, we are observing strong forward earnings momentum across almost all of its divisions, including Seven West Media that seems to have turned the corner.
How do you value it?
We are projecting Seven to grow more than 25% in profits in 2019 and 22% in 2020. Despite a solid growth forecast, Seven is trading on a sub-market multiple of just over 16 times, paying a 2.4% dividend yield. It’s a buy.
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