The Brickworks Limited (ASX: BKW) share price has risen by around 30% over the past year, outperforming the S&P/ASX 200 Index (ASX: XJO) by around 16% over that same time period.
There are three (or four) different sections to the Brickworks business. It has an Australian building products division, a US building products division, a property trust investment and a shareholding of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
Each section has its own influence on the Brickworks share price and results. These are some of the recent comments from the company and analysts on the business:
The property division is expecting a big result
Brickworks is expecting to report record property earnings in the first half of FY22. Property earnings before interest and tax (EBIT), assuming no further transactions, is expected to be in the range of $290 million to $310 million. This compares to property EBIT of $253 million in FY21.
The COVID-19 pandemic has accelerated industry trends towards online shopping and increased the importance of well-located distribution hubs and sophisticated supply chain solutions.
Brickworks' managing director Mr Lindsay Partridge said:
In order to meet the strong customer demand, development activity within the property trust has also continued at pace. At Oakdale West, construction of the start of the art Amazon facility is due to reach practical completion at the end of December. The completion of this facility, together with others at Oakdale South, will result in significant development profits, also included in the record first half earnings.
In the second half of the financial year, Brickworks is expecting to complete additional developments at the Oakdale Estates in western Sydney and the Rochedale estate in Brisbane.
Brickworks is also selling 75 hectares of excess land at Oakdale East, resulting in a "significant" one-off land sale profit and extending the development pipeline in order to meet the unprecedented demand for industrial development.
This is increasing the underlying backing for the Brickworks share price.
Building products
Several weeks ago, the business held its annual general meeting (AGM) and outlined how both of its building products businesses were performing.
In Australia, it said that it was experiencing strong demand, though the first quarter of FY22 was disrupted by COVID-19 restrictions. First quarter revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) was "slightly ahead" of the prior corresponding period. It said there is strong underlying demand across the country, with a large backlog of detached housing construction work in the pipeline.
In North America, sales have been buoyed by the recent brick distributor acquisition, though margin pressures remain. Thanks to the acquisition of the Illinois Brick Company (IBC), the sales uplift was "significant".
Soul Pattinson
After the merger with Milton, Brickworks now owns 26.1% of Soul Pattinson.
Mr Partridge said:
The merger provides WHSP with increased scale, diversification and liquidity to pursue additional investment opportunities, and we expect WHSP to continue to deliver superior long-term returns and consistent dividend growth well into the future.
Is the Brickworks share price a buy?
Ord Minnett currently calls Brickworks a buy, with a price target of $26.20. Whilst the broker notes the ongoing performance of the property division, which is benefiting from higher valuations, the Soul Pattinson share price has been declining and hurting the underlying value of Brickworks shares over the last few months.
