I'm always on the lookout for good value ASX shares that could beat the return of the overall market.
It's even better when you can find that market-beating return with lower risk or lower volatility. I think Brickworks Limited (ASX: BKW) could be the best value within the ASX 200 (ASX: XJO) right now.
Brickworks is made up of a few different segments. When you look at a sum of the parts I think it becomes clear how attractive Brickworks is:
Property trust
Brickworks sells surplus land into a property trust which it jointly owns with Goodman Group (ASX: GMG). High-quality industrial properties are built on that land and leased out to tenants on long-term contracts with a bit of rental indexation built into the contracts.
The next big project is a huge distribution warehouse for Coles Group Limited (ASX: COL).
Brickworks' share of the assets has grown by an average of 18% per annum since inception of the trust in FY07 and the 50% stake is now worth $633 million.
Investments
It has held shares of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) decades in a very useful cross-ownership partnership.
Soul Patts is an investment conglomerate which is invested in a variety of ASX-listed shares and wholly-owned businesses. Soul Patts' earnings and dividend keeps growing, which provides consistency compared to the more variable construction sector.
At a share price of $22.71 at the end of FY19 (similar to today's price), Brickworks' stake in Soul Patts was worth $2.14 billion.
Combined, the Soul Patts and property trust book values amount essentially to the current market capitalisation of Brickworks.
Building products
After taking the other assets into account, we get Brickworks' entire Australian and US building products businesses for free.
Brickworks owns Australia's largest brick business, the second largest masonry business, the second largest roof tile business, a precast business and a 33% stake of Southern Cross Cement. These are great businesses within each building sector. The housing downturn has had a short-term negative effect, but things are expected to return to normal in the medium-term. Brickworks is already seeing its order book increase each month.
The best time to buy a business suffering from a cyclical slowdown is near the bottom of that cycle.
The newly-acquired US building products business also has a very promising future. Brickworks has made three useful acquisitions that, when combined, make it the market leader in the north east of the US where architectural brick buildings are a feature. In New York, Brickworks' market share is more than 50%. It also benefits from those older brick buildings that need regular maintenance and replacements of bricks – it's like an annuity stream for Brickworks.
In the US Brickworks can improve the profit margins of the combined business by fully maximising existing plants and closing any that are surplus to requirements, as well as other initiatives. There may be opportunities for further bolt-on acquisitions over time in the US for Brickworks.
Foolish takeaway
The value and income payments of the property trust and Soul Patts are very likely to keep going up over time and Brickworks' building products earnings should go up over the long-term too. I think it looks very good value and its steadily growing grossed-up dividend yield of 4.4% is solid in this current environment.
