I believe the Brickworks Limited (ASX: BKW) share price is a buy, particularly after today’s acquisition announcement.
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).
Brickworks’ Latest Acquisition
Brickworks announced that it has entered into a binding agreement to acquire Sioux City Brick for US$32 million, or $47 million.
Sioux City Brick has two modern manufacturing plants in Iowa and it has a leading position in the Midwest of the US where it has a reputation for premium architectural products. It has been operating for over a century.
Brickworks explained that this acquisition supports its growth strategy in North America and represents an attractive “bolt on” acquisition opportunity after the acquisition of Glen Gery in December.
Sioux City Brick has delivered consistent earnings for several years. Brickworks expects to create cost savings from operational and administrative synergies. The acquisition strengthens its position in its target region.
The acquisition will be funded by debt and is expected to add 3% to profit/earnings per share (EPS) after completing cost synergies. The acquisition is expected to settle within a week.
Brickworks Managing Director Lindsay Partridge said: “Sioux City’s manufacturing facilities are the best we have seen in the United States, reflecting the company’s focus on production efficiency and their reputation for product quality.”
Brickworks Trading Update
Perhaps as expected, there has been a decline in the Building Products Australia earnings due to reduced construction activity, lower sales volume and the impact of energy costs.
But, there has been a “strong” contribution from the Property Trust for FY19 to make up for the loss of building product earnings.
Glen Gery continues to perform in line with expectations and will make a positive contribution in FY19.
Therefore, subject to the Washington H. Soul Pattinson and Co. Ltd
(ASX: SOL) result, it’s expected that the Brickworks’ net profit in FY19 will be roughly the same as last year.
Brickworks has an enviable dividend record going back decades, good growth prospects in the US and a solid investment in WHSP which makes up most of the value of the Brickworks share price, the rest of the business – like the Property Trust, is an added bonus.
I’d be happy to buy a few shares at today’s price, with the thought that its Australian building product earnings could fall further in an Australian downturn. But the reliable shares in the free report could be even better picks.
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Disclosure: Jaz owns shares of Washington H. Soul Pattinson and Co. at the time of writing, but this could change at any time.
