The Brickworks Limited (ASX: BKW) share price has a potential upside of around 30% according to one of the leading brokers in Australia.
Brickworks is a building products business with operations across a number of sectors.
In bricks, where it's the leader in Australia, it has brands like Austral Bricks and Bowral Bricks. Within its masonry division, it has businesses like Austral Masonry and Urban Stone. Bristle Roofing is a key player in the roofing space for the ASX share.
Terracade is Brickworks' business for specialised building systems. Austral Precast is a leading provider of concrete building solutions. Capital Battens is a provider of timber battens.
Broker thoughts on the Brickworks share price
Citi currently rates it as a buy, with a price target of $30. That suggests a possible rise of 30% if the broker is right.
FY21 was better than the broker was expecting thanks to the strong property performance and it's expecting further strong performance into the future.
Based on the FY22 numbers, Brickworks shares are priced at 15x FY22's estimated earnings.
What is expected from the property division in the next couple of years?
For readers that don't know, Brickworks as a 50% property joint venture with Goodman Group (ASX: GMG) where excess Brickworks land is sold into the trust.
Once a lease pre-commitment is secured, the serviced land can then be used as security, with debt funding used to cover the cost of constructing the facilities.
At the end of FY21, the total value of leased assets held within the property trust stood at $2 billion, generating $89 million of gross annual rent. Brickworks' 50% share of net assets, after including debt and assets under development, was $911 million at the end of the year.
Brickworks says that there is strong demand for prime industrial property, which is being fuelled by structural tailwinds, resulting in an "unprecedented" development pipeline. Those developments are increasingly complex, with features like robotics, automation and multi-storey. These are a critical competitive advantage for many businesses in the new economy.
The trust is currently building huge warehouses, including one for Amazon. Other large facilities have been committed for Woolworths Group Ltd (ASX: WOW), Australia Post and Xylem.
Completion of the above facilities, and the "long pipeline" of other pre-committed developments, will result in an increase in lease assets of around $1.2 billion and gross rent of $50 million within the property trust over the next two years.
Brickworks dividend
At the current Brickworks share price, it has a grossed-up dividend yield of 3.75%.
Brickworks says that it's proud to be one of the few S&P/ASX 200 Index (ASX: XJO) companies to increase the dividend to shareholders during COVID-19 in 2020.
It has maintained or increased its normal dividend every year for the last 45 years.
