Kerry Stokes’ retirement won’t diminish his influence over vast empire

Kerry Stokes has vacated his position as executive chairman of the top company in his publicly listed empire, Seven Group Holdings, but metaphorically speaking he hasn’t left the building.

It’s the Claytons resignation that will save him from signing board papers, maybe free up a bit of time, but it won’t signal that he has taken his hands off the rudder.

The 80-year-old avid skier and photographer will continue to cast a long shadow over everything Seven Group does. To begin with, Stokes’ private company is the largest shareholder in Seven Group so he retains implicit control of all major decisions.

Kerry Stokes won’t be retiring his calculatorCredit:Philip Gostelow

His son Ryan Stokes is Seven Group’s chief executive – so not even one degree of separation between Kerry Stokes and control. And Stokes will retain chairmanship of Seven’s listed subsidiary Seven West Media – a business in which he has a long-standing passion.

Thus Stokes senior’s decision to hand the chair of Seven Group to a family outsider, Terry Davis, barely loosens any tentacles he holds over the empire he created and which is responsible for his net wealth of $5.8 billion.

Further, Stokes has entered into a three-year advisory role with Seven Group – one that is both renewable and at $475,000 a year is more lucrative than the $385,000 annual chairman’s stipend that he is giving up.

“Of course, I remain very committed to Seven Group Holdings and I will remain involved in the business in an advisory capacity. As a shareholder, I look forward to the company’s continued growth and prosperity,” Stokes said.

There has been no reason offered for the timing of his decision to leave the board, but it is no coincidence that the company has just completed a company-altering takeover of construction materials group, Boral.

With 70 per cent of Boral owned by Seven Group, Ryan Stokes has become Boral’s chairman and will oversee what could be a long-dated revival of the company’s Australian business.

Based on the current trajectory of the massive asset sale program that Boral is undertaking, Seven is expected to have its “kerching” payback moment at time over the next 12 months.

Boral delivered its 2021 result this year but notably decided not to pay shareholders a dividend. The big prize awaits when Boral signs the contracts on the various asset sales it has already announced or is in the throes of completing.

Seventy per cent of the more than $4 billion in surplus capital that this should produce has Seven’s name on it.

And while all manner of capital management options have been bandied about, the fact that Boral has a very limited number of franking credits, handing the loot back to Boral’s shareholders is not tax efficient.

The prospect of yet another Boral share buyback is another kite that has been flown.

The trouble is that thanks to Seven’s takeover hoovering up 70 per cent of Boral’s shares and the just completed buyback taking 10 per cent, undertaking a buyback at this time makes no sense.

There is an expectation among some in the analyst community that in the event of portfolio churn, Coates would be the most obvious candidate to sell.

Boral’s free float is relatively tiny and making it any smaller would see it disappear from the index. By a process of elimination the only option is a capital return to shareholders.

Once completed, Seven Group will have the job of overseeing the productivity gains promised by Boral’s management.

But it may also be an inflection point for Seven to take a closer look at its portfolio of investments. Its two major assets, equipment rental company Coates and Caterpillar dealer Westrac reported solid earnings performances in the 2021 financial year.

While Ryan Stokes says both have growth potential, there is an expectation among some in the analyst community that in the event of portfolio churn, Coates would be the most obvious candidate to sell.

Stokes said Seven still saw growth opportunities in the industrial businesses, like Caterpillar, Coates and Boral courtesy of the prospect of new infrastructure projects. This may suggest that Seven’s investment in a 30 per cent stake in Beach Energy would be a more likely candidate to sell.

One can be assured that whatever decisions made by Seven Group, Kerry Stokes won’t be far from the action.

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