If you're looking for ASX value stocks to invest in, industrial company Brickworks Limited (ASX: BKW) might be a good option to look at today.
Although Brickworks is best known as an ASX dividend share, its share price has been moving sideways for some time, convincing me that it would qualify as a value stock now.
Brickworks shares have dropped by 16% since reaching an all-time high of $31.11 in March 2024. Over the past year, the company's shares have decreased by 2%, while the S&P/ASX 200 Index (ASX: XJO) has surged by 13%.
Attractive valuation compared to its book value
The prime reason that I think this is a value stock is based on its price-to-book (P/B) ratio.
Brickworks shares are valued at a P/B ratio of around 1.1x, which means the share price is approximately 10% more than its book value.
Over the last ten years, the company's P/B ratios have fluctuated between 0.85x and 1.6x. The Brickworks share price rarely falls below its book value. It has done only three times during the past decade, including the COVID-19 pandemic in 2020.
On the other hand, its book values per share (BPS) have consistently increased from $14.55 in FY19 to $22.87 in January 2024. The two factors supporting such consistent book value growth are:
- Brickworks invests in other ASX shares, including Washington H Soul Pattinson & Company Ltd (ASX: SOL)
- Brickworks is collaborating with Goodman Group (ASX: GMG) to develop a large parcel of land as industrial properties
Based on these assets, Brickworks estimates the company's net asset value is approximately $37 per share, even higher than its reported book value.
The key difference between the two figures is that "the balance sheet does not recognise the full market value of development land and its investments," the company explained.
Property development ventures
In addition to its core business of building products, Brickworks has a significant presence in property development through its two 50/50 joint ventures with Goodman Group.
These ventures focus on developing and managing industrial properties, particularly large-scale warehouses and logistics centres. With the rise of e-commerce and the increasing need for efficient logistics networks, this segment has become a strong growth driver for Brickworks.
Property trusts generate both rental income and capital gains through property value appreciation. This dual income stream provides financial flexibility, enabling reinvestment and consistent dividend payments to shareholders. In May 2024, the company explained:
Longerterm, we are confident that structural tailwinds will support customer demand and asset growth. Industry trends to online shopping has increased the demand for "last-mile" logistics and warehousing and we are seeing increasing demand for sophisticated and higher value facilities.
These structural trends, along with land supply issues, have driven up rent for prime industrial property in western Sydney by 55% in the past two years. We estimate that the current passing rent within the Industrial JV Trust of $147/m2 is now 35% below average market rent of $225/m2.
The Brickwork share price closed at $26.15 on Wednesday.
