Seven Group FY24 earnings boosted by strong WesTrac and Boral performance

About Seven Group Holdings Limited

Seven Group Holdings Limited (Seven Group, the Group, ASX: ‘SVW’) is a leading Australian diversified operating and investment Group employing 15,000 people across 5 core businesses in the Industrial Services, Energy and Media sectors. The Stokes family own about 50 percent of Seven Group. These businesses and investments include WesTrac, the 100 percent owned sole authorised Caterpillar dealer in WA, NSW and ACT; Boral which is Australia’s largest integrated construction materials supplier, and Coates which is the largest provider of equipment solutions in Australia.

The Group also owns 30 percent of Beach Energy, a mid-tier energy exploration and production company; and 40 percent of Seven West Media, one of Australia’s largest multi-platform media companies, including Seven Network and The West Australian newspaper.

Resources and construction sectors underpin performance 

FY24 Group revenue of $10.6 billion was up 10 percent on the previous financial year and underlying Group EBIT was up 20 percent to $1.42 billion. A high-level analysis of these numbers shows that WesTrac and Boral were the primary contributors to Seven Group’s earnings in FY2024. WesTrac provided 56 percent of Group revenue and Boral’s contribution was 33 percent of revenue. At the underlying EBIT line, the result was 43 percent from WesTrac and 25 percent contribution from Boral.

The remaining 32 percent of underlying Group EBIT was contributed by Coates at 23 percent, with the Group’s energy business contributing 7 percent. Media assets accounted for just 2 percent of underlying EBIT.

This simple analysis illustrates that an investment in Seven Group is principally a belief in the prospects of Australia’s resources and construction sectors.

Favourable long-term earnings growth prospects 

Seven Group’s core focus on mining production, infrastructure and construction, and gas to support the energy transition, offers investors exposure to growth, with franked dividends and moderate risk.

The Group is comprised of industrial services businesses with already strong and growing market positions that service Australia’s mining and construction industries.  The Stokes’ family leadership and their approach to business management is a key element in Seven Group’s ongoing success. It involves cost discipline and a deliberate focus on return on shareholder capital, at the business unit level. This strategy requires each business unit to generate superior returns and provides enhanced growth opportunities under Seven Group’s ownership that are greater than if they were owned and operated independently. Each subsidiary’s performance is separately measured to ensure that each subsidiary earns an optimal return in its own right. In other words, there is no cross-subsidisation between subsidiaries, which in turn enables the Group to earn superior long-term returns for shareholders.

Outlook

Seven Group’s 10-year history of double-digit annual earnings growth looks set to continue. Currently WesTrac is driving SVW’s earnings growth, however this will soon be augmented by higher earnings from the Group’s 100 percent owned subsidiary, Boral.  In FY24, WesTrac’s earnings grew by 25 percent while Boral’s earnings uplift was 61 percent.

It is important for investors to appreciate that Seven Group’s revenue is exposed to changes in commodity volumes, and not commodity prices. Commodity prices are volatile, while volumes consistently grow. So for example, with the iron ore price currently just below $100, this impact is felt by iron ore producers like BHP, RIO and Fortescue, which are price-takers.

The $77 billion of committed resource projects across Western Australia and NSW are forecast to produce 1000 million tonnes of iron ore exports and 210 million tonnes of thermal coal exports per annum by FY29.

In addition, Australia’s estimated $1.7 trillion 7-year pipeline of transport and energy transition infrastructure and construction activity through to FY31, that includes an estimated 240,000 new homes annually, should also support Seven Group’s future growth.

The Group’s exposure to key growth sectors in the Australian economy and the Stokes family history of business oversight with a strong shareholder return bias should deliver above-market earnings and dividend growth in the decade ahead.