why the drop- 4%, page-15

Soul Patts’ stalwart Robert Millner adjusts to the new order

Robert Millner, Australia’s Warren Buffett, is now in his 70th year. The chair of investment business Washington H. Soul Pattinson has ridden many market cycles, but he has never seen anything quite like the current settings.

“It staggers me that in the latest figures I saw, $4.5 trillion around the world is earning negative interest rates. We are a 0.75 per cent cash rate here. I don’t know how much further we are going to go but it is certainly having a very bad effect on retired people and people who have money in the bank. A lot of them got burnt in the GFC, a lot of the stocks like BHP are not back to where they were pre-GFC, so particularly older retired people are really struggling.”

With a possible two further rate cuts from the RBA on the cards, Millner says savings are shifting out of the banks and hunting for yield, effectively inflating asset prices in property and equities. “But you don’t want to buy BHP at $35 or $36,” he warns. “You don’t want to turn around and see shares at $30 or $25, you are actually tearing up capital, so it is a very difficult decision for people as to where they put their money.”
Rob Millner sees the recent weak consumer and business sentiment figures reflecting slow growth and fragile geopolitics around the world. “It has given an opportunity for business to go and borrow some money at very attractive rates, but then again you have got to be able to find something in this market that you could actually make a good return from.”Turning to acquisitions and investments, he argues that players need to adjust. “People used to work on a 14 or 15 P/E (price-to-earnings) ratio. Now with this lower cost of capital you can probably look at paying 19 or 20 (times earnings) for something, but don’t churn up capital,” he warns again.It is just this environment that helped deliver a 7 per cent jump in the Soul Patts share price last Monday, thanks to new research by Shaw & Partners. “It was a very good positive. They say it is a good long-term buy,” Rob Millner beams back.This is exactly the message he wants shareholders to hear.Soul Pattinson, with its significant cross-shareholding in manufacturer Brickworks and investments across many sectors, is often put in the “too hard” basket by analysts and Millner admits it is not a very liquid company. “Some people think the crossholding is complicated: the Millner family own quite a large percentage of the shares and then we have these various different investments. Some say you can go and buy TPG, you can go and buy New Hope or API (Pharmaceuticals) individually, but we have had one of the best track records on the ASX.”Immaculately and conventionally turned out — the personification of what value investing should be — Millner shows off the new Brickworks marquee offices on Sydney’s Clarence Street: generous internal spaces, with walls of white imported European clay brickwork and wide semicircular brick arches. “We were probably asleep 10 or 15 years ago making red bricks and brown bricks.“Now we’ve got all sorts of bricks and we import. We have glazed product. We’ve even got glass bricks,” he grins.The bricks business underpins Soul Pattinson’s core earnings. In Australia some 2000 acres of land bought for clay in the last century have delivered a property portfolio worth over a billion dollars. Yet the latest market interest in Soul Pattinsons has as much to do with its two other big listed investments, New Hope Coal and David Teoh’s TPG Telecom, whose own share values might be depressed.
That depression, insists Rob Millner, rather more exercised, is all about regulation.“Obviously we are constrained at the moment. We have got TPG in front of the ACCC. New Hope, where we are looking to get the Ackland stage three approval, that has been going on for 12 years. We have ticked all the boxes, we have just had the Court of Appeal give us another tick. We are just waiting for them to come down with their final decision and then hopefully the government will endorse that decision.”Millner won’t be drawn on the controversial TPG-Vodafone merger case beyond arguing strongly that it would increase competition among telcos. If he does lose, however, he says it will be another knock on the head. This is a reference to the $100m that was sunk into building a new mobile network with Huawei technology and buying government spectrum, only to have Huawei black-listed by the government. “We spent $100m. I bet we don’t get any compensation back from them. There is too much control here. Every business we are involved in — New Hope, TPG, we are constrained in pharmacy in what API can do. We have got people telling us how to do it, when to do it and why to do it. It’s making it very, very difficult.”In stark contrast, internationally Rob Millner is also living the American Dream.In the past 12 months, he has bought the fourth-largest brick company in America, added a bolt-on and is looking at one more. Millner says that the team can now produce a brick in America and deliver it to Australia more cheaply than one made here. “And also we get a tax incentive from the American government to do that,” he adds. “Our energy costs here are three times more than America and our electricity costs are twice America’s.”As if Millner needed any more convincing, a trip two months ago to Philadelphia with Brickworks chief Lindsay Partridge showed just how open for business America wants to be. “On a Monday night we had three senior people from the Pennsylvania government come and speak to us, asking us how can they help us and what can they do for me. And I said to this gentleman, ‘Sir, I have never had anything like this in Australia. You guys are unique wanting to help us. Everywhere around Australia we are getting headbutted — we have got headwinds in how we are going to do business’.”Shareholders of Soul Pattinson might find Millner’s railing against state and regulatory intervention disconcerting but he is not alone. Many in business are exasperated by energy prices and the “big stick” intervention power that threatens to creep across to sectors beyond energy. Yet unlike many top floor leaders in this low-growth environment, Rob Millner is confident that he can still grow the dividend.

Remarkably, the Soul Patts dividend has now been growing continuously since 2000.“I think it can. We have some very good cash-generating businesses, some excellent people. It is also a track record that since floating in 1903, we have never missed paying a dividend,” he reminds proudly.“I am constrained by people telling us what to do. If we can get New Hope approved and we get the Federal Court to give us the tick (on TPG) we are going to have an excellent year.”Then he pauses a second before adding: “I think we’ll have an excellent year anyway.”