Brickworks Limited (ASX: BKW) has reported its result for the half year to 31 January 2019, is the share price trading at a massive discount?

Brickworks was listed on the ASX in 1962 and has paid a dividend every year since then. The construction business has four divisions – Building Products Australia (eg Austral Bricks), Building Products North America (Glen Gery), Property and Investments (it owns 39.4% of Washington H. Soul Pattinson & Company).

Here’s What Brickworks Reported

The building products company reported that total revenue from continuing operations increased by 17% to $442 million.

Underlying EBITDA grew by 44% to $227 million (click here to learn what EBITDA means) and underlying net profit after tax (NPAT) increased by 37% to $160 million. Statutory profit, which includes ‘significant items’ rise by 18% to $115 million.

Brickworks’ underlying earnings per share (EPS) grew by 37% to $1.07 and the interim dividend was increased by the Brickworks Board by 6% to $0.19 per share. This means its underlying payout ratio was only 17.7%.

During the period, Brickworks sold 7.9 million WHSP shares for $26.37 each to generate cash proceeds of $208 million to fund its Glen Gery acquisition. The parcel of WHSP shares it has owned since 1969 has delivered a return of 14% compounded annually for 49 years.

Brickworks Property EBIT (click here to learn what EBIT means) increased 167% thanks to the settlement of the Punchbowl property sale and a revaluation increase of $67 million.

However, it wasn’t all good news. The Building Products Australia division showed a 35% fall of EBIT from continuing operations. Whilst revenue was stable, higher energy costs and lower sales volumes reduced the EBIT margin.

The Building Products North America division saw revenue of $26 million, which was ahead of internal forecasts. The company is also investigating the possibility of a new state of the art plant as well as a heavy refit of the current facility.

Management Comments

Brickworks Chairman Mr Robert Millner talked up the current valuation of Brickworks, he said:

We believe Brickworks offers investors compelling value, with the inferred asset backing of almost $27 per share, exceeding the share price by close to 50%. The value of our shareholding in WHSP alone, at $2.8 billion, is approximately in line with Brickworks’ market capitalisation.”

Is Brickworks shares a buy?

With the share price trading at such a discount to the underlying value of assets, Brickworks seems like a good value buy, particularly with a fully franked dividend yield of 3%. I would be happy to buy shares of Brickworks today and hold for the long term, despite the troubles in the construction industry.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).