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.
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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