A Deeper Dive into SGH...

Now called SGH, Seven Group Holdings is a diversified asset manager with a market cap of $19.05B. Their holdings comprise of Westrac at 41.5%, Boral at 30.4%, Coates at 18.8%, SGH and Beach Energy at 8.8%, and Seven West Media at 2.7%. Although its Media holdings will soon be reduced to 1.35%, as Southern Cross Media is acquiring a majority shareholding. In my last blog, I wrote that 90% of their businesses were dependent on a strong mining industry, this is not true. Westrac's franchisor, Caterpiller, have seen a 62% share price gain in the past year. And this was driven by the (newly realized) need of data centres to have access to transportable energy. Natural gas is how these data centres can satisfy their energy needs. It is needed because in most cities around the world, there is not yet the electrical grid infrastructure to meet their demand for energy. It won't be long until data-centre operators in Australia realise that they have exactly the same problem. And Westrac will be the company supplying the natural gas in NSW, ACT and Western Australia.

Boral is even less exposed to the mining industry. It is Australia's largest integrated construction materials company. Their products include Asphalt, Concrete, Cement, Lime, Quarry Materials and Technical Services. They have 7,500 employees, 8.500 suppliers and 14,000 customers. So, their customer base is diversified and spread across sectors. But technically, they reside in the building and materials services sub-sector. They have 360 operating sites: including 209 in concrete and 76 quarries. Coates also has a diversified client base, servicing 16,000 customers across all sorts of industries, 145 branches and one million pieces of equipment. Beach and SGH Energy are oil and gas production companies, comprising 8.8% of SGH's portfolio. Their EBIT was up 34% in FY25, showcasing substantial improvements in operational efficiency. Especially considering that the crude oil price declined 21% in 2025. Beach Energy will be focusing more on natural gas as the Australian economy transitions to a more electrified society. As mentioned earlier, natural gas will help to provide electricity for the AI data-centre buildout.

Since their listing in 1995, SGH have never decreased a dividend payment. From FY24 to FY25, they rose their dividend by 17%. And with a FCF payout ratio of 47%, they retain a good amount of cash flow to reinvest in their businesses. Even their media assets rose their EBIT by 66%. So, while the general assessment of the media sector is that of one in perpetual decline, Seven West Media are bucking this trend. The majority acquisition of Seven West by Southern Cross Media will give SGH a cash injection, while also meaning that Seven West will have better economies of scale to compete in the media landscape.

SGH has historically had a Free Cash Flow yield around 3.5%, and at the moment is sitting at 3.4%. This demonstrates that the shares are not overvalued, and that the dividend of 1.32% is very sustainable. And while the three main businesses are somewhat exposed to the mining industry, they are not directly exposed to commodity prices. Boral, Coates and Westrac service a wide number of customers, in different sectors. Beach Energy is trading substantially below its fair value, according to many analysts. Any uptick in energy prices should benefit the oil and gas sector. And at 1.35%, the media assets are basically immaterial to SGH's bottom line. But they are clearly well run and are doing well within the media sector.

SGH is a financially disciplined and well diversified holding company. The Stokes family have instilled a solid framework for how they manage and utilise capital. Their debt-to-equity ratio of 91% is further evidence of their prudent fiscal management. Their businesses are wide-ranging and have a large number of customers across many different sectors. And more importantly, their businesses are leaders in their fields. Each business has sound and long-standing customer relationships, and economies of scale. There is alo a potential growth driver for Westrac and Beach Energy, in the new business of servicing the energy needs of the AI data centre buildout. SGH on the ASX would be a good investment and definitely has the ability to beat the market averages over time.