Will lower interest rates boost Brickworks shares?

Is this business in line to be a major beneficiary of interest rate cuts?

| More on:
Yellow rising arrow on a brick wall with a man on a ladder.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Brickworks Ltd (ASX: BKW) shares have seen their fair share of pain in the last year as a result of higher interest rates and lower demand for building products. As the chart below shows, the Brickworks share price is down by close to 20% since 8 March 2024.

Created with Highcharts 11.4.3Brickworks PriceZoom1M3M6MYTD1Y5Y10YALL1 Mar 202427 Apr 2025Zoom ▾Mar '24May '24Jul '24Sep '24Nov '24Jan '25Mar '25May '24May '24Sep '24Sep '24Jan '25Jan '25www.fool.com.au

Most assets suffered from the headwind of higher interest rates in the last few years. Legendary investor Warren Buffett once explained the importance of interest rates, explaining:

The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.

So, in a broader sense, I do think Brickworks shares are primed to benefit. But, there are three reasons why I believe this company could be particularly exciting to own for at least the next 12 months if predicted interest rate cuts by the RBA occur.

Building products

The Australian building products division has suffered from the headwind of high interest rates – it has seemingly reduced the demand for construction and renovation. In the FY25 half-year result, Brickworks reported the Australian building products segment's operating profit (EBIT) was down 2% to $22 million.

Brickworks explained that residential commencements continued to be at historically low levels, predominantly in the key markets of New South Wales and Victoria, with the multi-residential segment particularly soft. Current activity levels in this sector are the weakest they have been since 2012. Extended approval timelines and higher costs are hurting demand.

I think that an interest rate cut would be very beneficial for this segment.

Industrial property

Brickworks has a significant exposure to industrial property through its ownership of half of two different industrial property trusts, alongside partner Goodman Group (ASX: GMG).

The warehouses in the industrial property trust have a significant value, but interest rates have acted as a headwind for the valuations of those properties. Interest rate cuts could turn into a tailwind and boost the underlying value of the properties (and Brickworks shares).

A reduction of the interest rate, or multiple cuts, should lead to higher rental profits as it'll reduce the financing costs of the debt within the industrial property trust.

Investment division

One of Brickworks' main assets is its holding of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares.

While I'm not expecting Soul Patts shares to surge in response to a rate cut, its large investment portfolio could benefit from the overall boost for assets that lower rates could bring.

If the Soul Patts share price does rise, it could materially improve the underlying value of Brickworks shares. I'm also expecting the growing Soul Patts dividend to help fund higher Brickworks dividends in the coming years.

Motley Fool contributor Tristan Harrison has positions in Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Goodman Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

A young woman with tattoos puts both thumbs down and scrunches her face.
Opinions

2 ASX shares I'm avoiding in today's uncertain market

I wouldn't touch these two stocks if you paid me right now.

Read more »

Smiling elderly couple looking at their superannuation account, symbolising retirement.
Opinions

Aiming for rock-solid retirement income? I'd buy these two ASX shares

These stocks have impressive dividend credentials.

Read more »

a smiling picture of legendary US investment guru Warren Buffett.
Opinions

Would Warren Buffett buy Soul Patts shares?

Soul Patts is an impressive business. But would it appeal to one of the world’s greatest investors?

Read more »

asx share price growth represented by hand holding hourglass surrounded by dollar signs
Opinions

'Patience isn't passive': Expert reveals 2 ASX shares his team won and lost on

They say patience is a virtue. This asset manager says it can also determine your investment success.

Read more »

A young couple sits at their kitchen table looking at documents with a laptop open in front of them.
Opinions

Why I'd buy these top ASX 200 shares next

Growing businesses are compelling. These two are growing significantly.

Read more »

A elder man and woman lean over their balcony with a cuppa, indicating share rpice movement for ASX retirement shares
Small Cap Shares

Why I think this ASX small-cap stock is a bargain at 58 cents

This stock looks like a great buy, in my opinion.

Read more »

A young man wearing glasses writes down his stock picks in his living room.
Opinions

2 amazing ASX shares I wish I'd bought earlier

I think these stocks are performing incredibly well.

Read more »

ASX 200 retail shares a woman smiles over the top of multiple shopping bags she is holding in both hands up near her face.
Opinions

Up 90% in a year, is it too late to buy Zip shares?

Should investors buy this stock now or wait until later?

Read more »