Kerry Stokes’ industrial juggernaut Seven Group is keen on further acquisitions after more than doubling its cash flow to $1.2 billion in fiscal 2023, but green energy is not on the conglomerate’s radar.
Seven’s boss Ryan Stokes said that the company’s healthy balance sheet gave it the flexibility to pursue a number of avenues, with gas still its preferred play in the energy sector.
“That’s the great thing about the free cash flow generation of the group and our ability to deleverage, it now gives us multiple options … rebuilding the capacity for value accretive M&A (mergers and acquisitions) is a possibility,” Stokes told analysts on its earnings conference call last week.
Seven’s last major corporate activity was two years ago, when it pulled off a successful multi-billion dollar raid on buildings material supplier Boral.
The group’s foray into gas is one of the few sectors testing investor patience at the moment. Its 30 per cent stake in Beach reported a 24 per cent dive in earnings as production dropped and margins compressed due to falling oil prices but also the company’s own “execution challenges”.
The latter referred to the troubled Waitsia gas project being developed in Western Australia, which is both behind schedule and over budget. It triggered the departure of Beach chief Morne Engelbrecht this month – at the instigation of Seven – who will be replaced by Santos executive Brett Woods.
Some analysts are not expecting a quick turnaround of its woes, including Morningstar’s Nathan Reilly, who cut the firm’s valuation of Beach by 20 per cent.
“We are also now circumspect about Beach’s growth projects in general and cut production growth estimates for other Beach projects,” he said.
But Stokes says gas remains its focus on the energy front, despite flagging the promise that the green energy transition provides for its infrastructure business.
“If we look at the renewables investment, we certainly think that’s a big opportunity on the infrastructure investment side,” Stokes said.
But gas still wins over renewables when it comes to Seven’s own investments. The company is confident Beach is well positioned to deliver gas into a tightening domestic and international, market, as well as demand for gas as a transitional energy source as coal stations close.
“Primarily, we see the opportunity that gas has in supporting renewables … that’s where we see an opportunity to play, more so than investing in the renewable assets themselves. We think others, with a lower cost of capital than we have, are probably going to be better suited to do that,” Stokes said.
“We’re in a very healthy mining environment now, it’s a long cycle attribute in our view.”
“Over the last decade, we’ve really sort of reposition SGH (Seven Group) to be more exposed to the three core themes: Mining production, infrastructure construction, and the energy transition … we’re less exposed to that traditional consumer market where I think there’s probably a higher recession risk,” he added.
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Source: Thanks smh.com