Brickworks Limited (ASX: BKW) has reported its FY19 result, is the share price of the diversified construction business a buy?
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).
Did Brickworks Build A Good FY19 Report?
Brickworks has reported that its total revenue from continuing operations grew by 17% to $919 million.
The underlying EBITDA (click here to learn what EBITDA means) rose by 12% to $346 million and underlying EBIT increased by 10% to $310 million.
Statutory net profit fell by 12% to $155 million, but underlying net profit increased by 4% to $234 million.
Brickworks’ underlying earnings from Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) fell 16% to $104 million. This was partly due to the sale of 7.9 million shares at $26.37 per share, but also because WHSP suffered a fall in regular profit because of its resources division. Brickworks still retains 39.4% of WHSP after the sale.
The Brickworks owned-property division experienced a 68% increase of profit to $158 million, due to land sales and a $70 million higher revaluation. Its net trust rental income increased by 17% to $26 million thanks to rent reviews and the addition of new developments.
However the Australian building products division didn’t have a good year due to lower residential construction activity across the country and increased energy prices (costing an additional $12 million). That’s why this division saw a 4% fall in revenue to $755 million, an 18% fall of EBITDA to $88 million and 27% fall of EBIT to $57 million. Brickworks is taking brick kilns offline to control inventory levels and complete maintenance so they’re ready for when the cycle turns.
The American building products division exceeded expectations in the 8 months it owned it since acquisition. It generated revenue of AU$121 million and EBIT of AU$6 million. It also recently acquired Sioux City Brick to give it exposure to states around Iowa in the north-centre of the country.
Brickworks Dividend
The Brickworks Board declined a final dividend of 36 cents per share, an increase of 6%. That brought the full year dividend to 57 cents per share, which is also an increase of 6%.
Brickworks Outlook
The values of its property buildings could continue to climb if interest rates keep falling in Australia and in the US. The property trust also achieved pre-commitment for a 66,000m2 facility, up to 34 metres high, which is likely to be worth $300 million and will be leased to Coles Group Limited (ASX: COL) when finished. This is good exposure to the ‘new’ eCommerce economy.
Its building products businesses have good futures and Brickworks continues to invest in its plants to improve efficiency and profitability, which could be particularly attractive in the US. In Australia the problems with wall cladding and structural failure could lead to a rise in demand for Brickworks’ products – particularly Austral Precast. Brickworks is supporting higher standards, controls and compliance within the industry.
Is The Brickworks Share Price A Buy?
Brickworks is trading at a very attractive discount to its inferred asset value, although it always does so I wouldn’t expect this to close up soon. But that does help improve the fully franked dividend yield, which is currently 3.25%. even after the share price has risen 6% in early response. I’d be happy to buy shares today for the long term.
But I’d prefer to buy the attractive and reliable shares in the free report below even more.
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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.
