The Brickworks Limited (ASX: BKW) stock price has gone on a very strong run. It has risen by around 25% in just three months, compared to a rise of around 9% for the S&P/ASX 200 Index (ASX: XJO).
After this recent strength, some investors may be concerned they've missed the boat on this one. But, has it risen too far to invest?
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What's driving the Brickworks stock price?
Remember – there are four main segments of the Brickworks business. It has an investments division, an industrial property division, an Australian building products segment and a US building products segment.
I suggest that the property division and the Australian building products division are likely driving Brickworks' stock price higher.
Investors seem to have moved on from what I'm going to call 'peak worry' about interest rate rates and commercial property valuations – we've seen the share prices of industrial property-related businesses rise. For example, in the last three months, the Goodman Group (ASX: GMG) share price has risen more than 30%.
We've also seen a number of large takeover offers for other Australian building product companies, including CSR Ltd (ASX: CSR), Adbri Ltd (ASX: ABC) and Boral Ltd (ASX: BLD). If those businesses are all worth more than what they were trading for, then perhaps the Brickworks Australian building product division is also worth more too?
Is it too late to invest?
Brickworks stock continues to trade on the ASX, so it's still possible to invest.
Has the Brickworks stock price reached an all-time peak that it will never surpass? I doubt it.
I think a lot of returns have been brought forward, but the business is still capable of growing its underlying asset value.
Brickworks can't really control what happens with the investments division, but it's seeing significant progress with its joint venture industrial property trust where it's building large logistics properties (which are in high demand, including robotics and automation and multi-storey warehousing) on land no longer needed by the manufacturing side of Brickworks.
I don't know what interest rates or commercial property prices are going to do, but the strong tenant demand is driving rental income and new completions are helping create development profits and increase the underlying value. Over time, I think the property division can keep growing value significantly.
I think the managing director, Lindsay Partridge, effectively explained the opportunity for Brickworks stock with its property:
Despite the volatility in the property market more broadly, we continue to experience strong lease enquiry for large-sized industrial facilities. Following the strong development progress achieved in the first half and the commencement of the final spec units at Oakdale West, we expect this estate to be fully built out by the end of FY24.
As we recently announced, we have now achieved development approval at Oakdale East Stage 2, and this extends our development pipeline by a further five years. Given the limited supply of appropriately zoned and approved land in Western Sydney that is available for large-scale industrial development, this is a significant milestone.
In an extremely tight industrial property market, we are able to offer prospective tenants large lot sizes in prime locations, facilities of unrivalled quality, and a proven track record of delivering new developments on time and on budget.
