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Seven Group Holdings (SVW): Capital allocation done right

A leading Australian diversified investment Group

Seven Group Holdings (SVW) is a leading Australian diversified operating and investment Group with market leading businesses and investments in Industrial Services, Energy and Media sectors. These businesses and investments include: (1) WesTrac (100% interest), the sole authorised Caterpillar dealer in WA, NSW and ACT; (2) Coates (100%), the largest provider of equipment solutions in Australia, with leading market share among top-tier customers; (3) Boral (~72%; BLD; not rated), Australia’s largest, integrated construction materials supplier; (4) Beach Energy (30%; BPT; Buy, TP$2.00/sh), a mid-tier energy exploration and production company; and (5) Seven West Media (~40%; SWM; not rated), one of Australia’s largest multi-platform media companies, including Seven Network, 7plus and The West Australian.

Leading indicators support FY24 EBIT growth outlook

SVW’s FY24 EBIT growth guidance for its Industrial Services businesses of “high single to low double-digit” is achievable given: (1) robust Australian OEM order backlogs, providing good visibility on new equipment sales for WesTrac; (2) expected growth in iron ore production volumes in WA, driving greater aftermarket opportunities for WesTrac; and (3) YoY growth in the value of engineering construction work commenced and yet to be done of 33% and 37%, respectively, suggest increased demand for equipment hire services (Coates) and construction materials (BLD).

Investment thesis: Buy; TP$33.00/sh

SVW’s businesses and investments are market leaders in their respective industries, with scale, brand and industry expertise underpinning commercial advantages that are hard to replicate by competitors. We are positive on the near-term outlook for mining production, engineering construction and transitional energy markets; critical minerals mining, renewable project construction and expected domestic and international gas supply shortfalls represent longer-term tailwinds. SVW’s approach to capital allocation, access to low-cost capital and use of leverage position it well to address organic and inorganic opportunities and maximise ROCE.

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Authored by Joseph House – Analyst – at Bell Potter Securities, 15 September 2023
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