Seven Group Becomes Substantial Holder of Boral
Back in March when Australia was struggling to battle the coronavirus pandemic, Seven Group Holdings (SGH) turned the threat into an opportunity. The firm witnessed value in picking up construction group, Boral Limited, who was heavily beaten down as part of the broader market sell-off. Boral found itself in an extremely vulnerable position as it felt the direct effects of the coronavirus-induced sell-off. This is evident as its share price hit the $2.70 mark, a level that Boral has consistently traded above for close to ten years.
Seven Group’s CEO and CFO, Ryan Stokes and Richard Richards took a leap of faith and started purchasing Boral’s shares in small parcels on 16 March 2020 before holding back when the market hit rock bottom on 23 March 2020. By March, SGH had already owned close to 3 per cent of the construction business. More recently, the acquisition spree resumed, and a total of 111 million shares were bought. Presently, a seat at the table has been reserved for Mr Stoke.
An interesting fact is that SGH was not the only firm eyeing on Boral. Specifically, investment firm, Perpetual Limited re-surfaced as a substantial shareholder this week. The company now holds a 5.5 per cent ownership, displacing former substantial holders such as State Street and BlackRock Group. Both companies have announced that they are no longer a substantial holder on 03rd and 02nd June 2020 respectively.
SGH’s decision may not have emerged at an inappropriate time. From a broader point of view, Boral's financial position has constantly been a concern to investors. This is because the firm has announced its fifth profit downgrade back in February 2020. More recently on 01 June, Boral revealed its successful completion of a new US Private Placement (USPP) note issue of $200 million. Specifically, the note consists of two separate tranches, a five and seven-year bullet maturities with an average coupon of 4.49 per cent. Additionally, another red flag which threatens Boral’s position arose when credit rating agency, Moody’s Investor Services, affirmed the rating of “Baa2” for Boral. More notably, outlook has been downgraded from stable to negative.
Meanwhile, SGH has been able to emerge out of the pandemic relatively unscathed. It’s portfolio of business which includes Coates, Allightsykes, WesTrac, Beach Energy and Seven West Media have each provided essential services to help the nation tide through the pandemic. Specifically, Seven’s mining and construction business headed by WesTrac has been largely unaffected with year-to-date- revenue as of April, advancing by 15 per cent. Additionally, while events revenue has been affected, Coates Hire’s general operations and year-to-date revenue have fallen broadly within expectations. Moving forward, SGH remains to be in a strong position. This is because despite withdrawing its FY20 guidance, the firm has in excess of $800 million of undrawn facilities and cash of $430 million.
By Caroline Wong
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