Media a bust for Stokes but the billionaire’s fortunes are in good shape

Kerry Stokes’ media business Seven West barely earned enough last year to buy a decent harbourside mansion in Sydney or one of Melbourne’s better addresses, but that’s not why the billionaire’s wealth dropped around a billion dollars on Tuesday morning.

It has been a long time since Seven West had any material sway on the family fortunes despite owning the best known brand in the Stokes empire: Seven Network.

Seven West’s paltry full-year net profit of $16.6 million is a rounding error on the earnings of its parent group – the $21 billion industrial conglomerate Seven Group Holdings (SGH) – which reported a 9 per cent jump in its profit (before significant items) of $924 million.

It’s not a bad result given SGH’s overall revenue was essentially flat due to some parts of the business, such as its equipment rental company Coates, having a tough time in states such as Victoria and South Australia.

The near 10 per cent plunge in SGH’s share price on the back of the results merely reflected the market shock that this industrial behemoth would not continue to deliver something close to double-digit earnings growth for the current financial year. The media business, Seven West, reported a 64 per cent dive in earnings by comparison.

Kerry Stokes and his son, SGH chief executive Ryan Stokes, can probably take solace in the fact that SGH’s share price has been on a tear over the past couple of years (from $21 in December 2022 to $47 on Tuesday).

SGH’s media business, much like the owner of this masthead, Nine Entertainment, is battling in the digital advertising universe where global platforms such as Meta and Google dominate.

But the conglomerate can fall back on steady growth from the two sectors that have proven to be recession-proof over the past decade – state and federal governments with their infrastructure spending, and the big miners spending billions building and maintaining their mining infrastructure using SGH businesses such as WesTrac (which is a major dealer of Caterpillar equipment).

Another interesting point is SGH’s massive $1.95 billion in operating cashflow, which has helped get debt back to a level where it can contemplate another acquisition – such as its wildly successful takeover of Boral.

“It certainly gives us good opportunities, but will be disciplined in that context,” says Ryan Stokes. Needless to say, media acquisitions are almost certainly not on the agenda.

No one aside from Perth mining royalty such as Gina Rinehart and Andrew Forrest has profited more from the mining boom over the past two decades, and Stokes’ fortune is arguably on safer ground.

Unlike the miners, who need to fret about what any fluctuations in demand from China will do to iron ore prices, it is the ongoing volume of ore exports that fills SGH’s coffers via truck sales and service contracts.

That’s not all, of course. SGH has strong exposure to the ongoing infrastructure boom, and then there is the star performer at Tuesday’s annual results, Boral, with its exposure to the building industry and upside from the housing crisis.

“Residential activity is anticipated to recover from calendar year 26 underpinned by government housing policy and interest rate expectations,” Ryan Stokes told analysts and investors after the results were released.

“Major infrastructure projects on the east coast are also expected to continue to provide a steady baseline of activity.”

But as SGH’s significant earnings growth – despite a modest revenue rise – indicates, productivity is a topic Ryan Stokes is very familiar with, and he has shared some views ahead of the productivity summit in Canberra.

He welcomed the fact that productivity is on the agenda for the government but was not shy at pointing out that government services is one of the areas that need addressing as a “massive laggard” in terms of Australia’s productivity growth.

He also highlighted the government’s investment in infrastructure which is “often underappreciated in (its) contribution to productivity”.

Whatever input that investment might have on the nation’s productivity remains to be seen, but it’s certainly manna from heaven for the Stokes empire.

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