Seven Group Holdings Limited
I.
BACKGROUND of the company:
● Seven Group Holdings Limited engages in the heavy equipment sales and service,
equipment hire, construction materials, media, broadcasting, and energy assets
businesses. It operates through WesTrac, Coates, Boral, Energy, Media
Investments, and Other Investments segments
● SGH specializes in 4 main areas:
1. Industrial Services: SGH has a strong presence in the industrial services
sector, primarily through its subsidiary, WesTrac. WesTrac is one of the
largest authorized Caterpillar equipment dealers in the world, specializing in
the sale, rental, and servicing of heavy machinery, construction equipment,
and mining equipment.
2. Media and Broadcasting: SGH owns a significant stake in Seven West
Media (SWM), one of Australia's leading integrated media companies. SWM
operates television channels, publishes newspapers and magazines, and has a
substantial online presence.
3. Energy: SGH has investments in the energy sector, particularly through its
subsidiary Beach Energy. Beach Energy is a leading oil and gas exploration
and production company in Australia, involved in the exploration,
development, and production of oil and natural gas resources.
4. Investments: SGH also makes strategic investments in various other
industries and sectors, including technology, property, and other growth areas.
SGH's diversification across these sectors allows it to spread risk and take
advantage of opportunities in different industries. However, it's important to
note that the company's business interests and portfolio may evolve over time,
so it's advisable to refer to their official website or recent reports for the most
current information on their areas of specialization.
II.
SWOT ANALYSIS:
Strengths:
Weaknesses:
1. Diverse Portfolio: Seven Group
Holdings has a diverse portfolio of
businesses across various sectors, including
industrial services, media, and energy. This
1. Dependency on Key Sectors: Seven
Group Holdings has a significant reliance on
the resources and industrial services sectors.
Economic downturns in these sectors could
diversity can help mitigate risks associated
with economic fluctuations in specific
industries.
negatively impact the company's
performance.
2. Market Concentration: The company's
2. Strong Financial Position: The company concentration in the Australian market
has maintained a strong financial position
makes it vulnerable to local economic
with a history of stable revenue and
conditions and regulatory changes.
profitability. This financial stability provides
a solid foundation for growth and
investment.
3. Strategic Investments: Seven Group
Holdings has made strategic investments in
key sectors, such as infrastructure, through
its subsidiary WesTrac, which has
positioned the company to benefit from
growth in these sectors.
4. Operational Efficiency: The company's
focus on operational efficiency and cost
management has allowed it to maintain
competitiveness and maximize profitability.
Opportunities:
1. Infrastructure Growth: With increasing
investments in infrastructure projects in
Australia, Seven Group Holdings is wellpositioned to capitalize on this growth,
particularly through WesTrac's involvement
in construction and mining equipment.
2. Media Expansion: Seven Group
Holdings has opportunities to expand its
media presence and diversify its revenue
streams in the rapidly changing media
landscape.
3. Renewable Energy: As the focus on
renewable energy and sustainability grows,
the company could explore investments in
clean energy and related technologies.
III.
Threats
1. Economic Downturn: Economic
downturns or global economic uncertainties
could negatively impact the company's
businesses, especially in the resources and
industrial sectors.
2. Regulatory Changes: Changes in
government regulations, particularly in
sectors like media, could affect the
company's operations and profitability.
3. Technological Disruption: Rapid
technological advancements could disrupt
traditional business models in the media and
industrial sectors, posing a threat to Seven
Group Holdings.
What are some current goals in which the company has?
- SGH’s approach to sustainability is reflected in their core objective as a
business to maximise returns to stakeholders through long term sustainable
IV.
value creation. As part of this approach they look to embed sustainability into
the mainstream of our business management processes.
What are some current risks in which the company is facing?
-
The prices of oil and natural gas can be volatile as a result of many factors
outside of the Group’s control, including global supply and demand, the level
of economic activity in the markets that its energy, investments supply,
regional political developments and military conflicts in oil and gas producing
regions, as seen with the impact of the Ukraine War and sanctions imposed on
Russian energy since March 2022, the price and availability of new
technology and the cost of alternative sources of energy.
→ A material and/or prolonged decline in the realised prices of oil and gas may have a
material adverse impact on the financial results and future prospects of the Group.
-
-
V.
VI.
Mining Production and Commodities Market Risk: SGH's businesses, including
WesTrac and Coates, are exposed to the Australian mining industry, particularly iron
ore and coal exports. Changes in Asian markets, environmental policies, and political
tensions can negatively impact export volumes and prices, affecting SGH's financial
performance.
Competition: SGH operates in highly competitive markets, with customers having
multiple sources of supply. Increased competition could result in the loss of market
share or price pressure, affecting profitability.
Regulatory and Legal Risks: Changes in laws, regulations, and legal disputes can
disrupt operations and financial performance.
Environmental and Social Risks: Increasing emphasis on environmental and social
responsibility may require SGH to adapt its practices and incur additional costs.
What are some current initiatives in which the company are completing?
- Australia’s most significant projects in FY23, including: the Western Sydney
Airport (NSW), North East Link Tunnel Package (Vic), Westgate Tunnel
Project (Vic), Snowy Mountains Scheme 2.0 (NSW), Parramatta Light Rail
(NSW), North Star Magnetite Iron Ore Mine (WA), Sydney gateway Road
Project (NSW), Bruce Highway (QLD), Melbourne Metro Rail Tunnel (Vic),
WestConnex (NSW), Cross River Rail Project (QLD) and many more
What are the current P/E ratio, NPM and previous close values?
NPM = Revenue / NetIncome
NPM 2023 = 10.66 (a net profit margin in excess of 10% is considered excellent)
NPM 2024 = 12.22
→ Decrease 1.56
VII. FINANCIAL ANALYSIS & MODEL:
Seven Group (ASX: SVW) is a diversified operating and investment group with holdings that
sit across the mining, industrial, energy and media sectors. Some of Seven Group’s key
businesses include:
● WesTrac, an authorised Caterpillar dealer;
● Coates, an equipment rental provider; and
● Boral, an Australian construction materials business.
Seven Group also has investments in listed and unlisted energy assets and a shareholding in
Seven West Media.
WesTrac, part of Seven Group Holdings, has a unique position in the mining services sector.
They exclusively represent Caterpillar machinery in certain Australian regions. WesTrac's
revenue comes mainly from two sources: selling new Caterpillar equipment and providing
support for existing Caterpillar machines, including parts sales and maintenance, wheel
loaders, paving equipment. Customers rely on WesTrac not only for new machinery but also
to keep their existing equipment in good shape.
Unlike competitors in the mining services industry that often depend on sporadic contracts
with low returns, WesTrac has shifted its focus. They primarily earn revenue by servicing and
maintaining customers' Caterpillar fleets, which is an ongoing and critical expense for smooth
operations. What sets them apart is their virtual monopoly in this area, making them a
dominant and stable player in the market.
Coates is an equipment hire provider that owns Australia’s largest fleet of rental equipment
and has a 20% share of the national market. Coates provides a range of equipment to large,
medium and trade customers predominantly for use in infrastructure, mining and residential
construction projects. From 2015 to 2021, Coates managed to significantly increase its
earnings, going from approximately $100 million to $212 million. This impressive growth
happened even though their sales only increased by $25 million during the same period.
Looking ahead, Coates has a promising future with many upcoming infrastructure projects in
the pipeline. This should lead to faster revenue growth over the next five years compared to
the previous period, and this growth is expected to translate into higher earnings.
Coates' management has set ambitious goals known as "Team25 targets," aiming for a 25%
profit margin on $1.25 billion in revenue by 2025. Achieving these targets would mean
earnings of over $300 million, which is $100 million more than what they reported in 2021.
What makes Coates particularly attractive to us at Airlie is their strong track record, their
leading position in the market, and the positive outlook for their earnings.
Boral is a national integrated construction materials and building products business, with a
network of assets that support the production and sale of concrete, asphalt, and cement. Boral
has operated in Australia for over 75 years.
Eventho it have a downward trend, however, Boral, in the eyes of Seven Group Holdings,
presents a promising opportunity for growth and improvement on two fronts:
Firstly, by taking steps to reduce operating costs and raising prices when the competition
from imported products is decreasing, Boral can significantly boost its profit margins. While
revenue can fluctuate due to economic cycles, however by the issue of operating costs
through cost restructuring, Boral has the potential to quickly enhance its earnings.
Secondly, Boral possesses a valuable portfolio of unused land and properties, which have
largely been untapped for the past fifteen years. Seven Group Holdings sees great potential in
unlocking long-term value by developing these underutilized assets and optimizing Boral's
operational processes. In essence, Boral is viewed as a promising opportunity to maximize
the potential of these non-core assets and streamline its operations, which could lead to
sustained growth and profitability in the future.
Sources: financial modelling prep
1.
Improvements in Liquidity: the significant decrease in cash and cash equivalents from $1,254.6 million
in 2022 to $876.5 million in 2023. it remains a positive sign of improved liquidity. This level of
liquidity can support the company's short-term financial obligations, such as paying off short-term debt,
covering operational expenses, and taking advantage of investment opportunities.
2.
Reductions in Short-Term Debt: Another positive development is the significant decrease in interestbearing loans and borrowings in the current liabilities section, dropping from $1,365.0 million in 2022
to $450.4 million in 2023. This reduction in short-term debt can be seen as a prudent financial move. It
implies that the company has either repaid a substantial portion of its debt or opted to secure longerterm financing, reducing the pressure of immediate repayments. Lower debt levels also typically result
in reduced interest expenses, potentially leading to improved profitability.
3.
Increases in Total Assets: The modest increase in total assets from $13,593.4 million in 2022 to
$13,629.9 million in 2023 suggests that the company has made strategic investments during the year.
This could include acquisitions, capital expenditures in property, plant, and equipment, or investments
in intangible assets like technology or intellectual property. While these investments can drive future
growth and competitiveness, their success depends on the company's ability to generate returns from
them in the long term.
4.
Equity and Retained Earnings: The equity section of the balance sheet has shown significant
improvement, with net assets (equity) increasing from $4,283.7 million in 2022 to $4,615.3 million in
2023. This growth in equity can be attributed to the increase in retained earnings from $1,634.8 million
to $2,061.6 million. Retained earnings represent the cumulative profits the company has kept after
distributing dividends. This growth suggests that the company has been profitable and has retained
more earnings instead of paying them out to shareholders. This can be a sign of confidence in the
company's ability to reinvest profits for future growth.
5.
Reserves: The increase in negative reserves from -$1,495.8 million to -$1,526.6 million indicates
accumulated losses over time. Negative reserves can be a result of past financial difficulties, write-offs,
or accounting adjustments. It's essential for the company to address these negative reserves to
strengthen its financial position.
6.
In conclusion, the balance sheet reflects a positive shift in liquidity, reduced short-term debt, and
increased equity. However, it's crucial to scrutinize the underlying reasons for these changes. Investors
and stakeholders should consider the company's overall financial health, its ability to sustain
profitability, and the strategic decisions made by management. Furthermore, examining the company's
cash flow statement, income statement, and notes to the financial statements can provide a more
comprehensive view of its financial performance and outlook.
2019 - 2021: During this period, the company experienced steady growth in revenue.
Operating cash flow also increased, indicating that the core operations were generating more
cash. The FCF showed consistent growth, indicating the company's ability to cover capital
expenditures while having surplus cash. This is generally a positive sign.
2022: FCF experienced a slight decrease compared to the previous year, likely due to an
increase in capital expenditures. It's essential to understand the reasons behind the increased
CapEx.
2023 - 2028 (Projected): FCF is projected to grow significantly over these years, driven by
substantial revenue growth. This is a positive trend, indicating that the company expects its
operations to become more profitable. However, it's important to assess whether the projected
revenue growth is realistic and sustainable.
Overall:
-
The company has demonstrated a history of positive FCF, which suggests it has been
able to generate more cash than it spends on both operations and investments.
The decrease in FCF in 2022 should be investigated further to understand the reasons
behind it and ensure it's not indicative of a negative trend.
The projected FCF growth is promising, but it's important to monitor the company's
performance against these projections in the coming years.
https://sevengroup.com.au/assets/c2aaf04caa/Final-2023-Annual-Report.pdf
https://site.financialmodelingprep.com/financial-ratios/SVW.AX
https://www.wsj.com/market-data/quotes/AU/XASX/SVW/financials/annual/cash-flow