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AGM: I think the Brickworks (ASX:BKW) share price is an opportunity

I believe the Brickworks Limited (ASX: BKW) share price is an opportunity after holding its AGM and giving a trading update.

What did Brickworks say at the AGM?

Firstly, Brickworks reminded investors about its performance in the last financial year (FY20).

It saw statutory net profit increase by 93% to $299 million and underlying net profit fell 38%. Brickworks also declared a final dividend of 39 cents per share, bringing the full year dividend to 59 cents per share (and increase of 4%).

Regarding the dividend, Brickworks Chair Robert Millner said: “In the current environment of global uncertainty and record low interest rates, we recognise that a reliable source of income is more important than ever to our shareholders. Our ability to once again increase dividends is testament to our strong financial position, prudent capital management and our diversified business model. 

Brickworks provides investors with exposure to a portfolio of attractive businesses with a long term record of valuation creation and dividend growth.”

Property trust planned growth

Brickworks owns a 50% share of an industrial property trust, along with Goodman Group (ASX: GMG). At the end of FY20 the assets of the trust were over $2 billion, and after debt Brickworks’ share of net assets was $727 million.

The planned Amazon distribution centre construction work is well advanced and is due to be completed in September 2021. Major infrastructure works are also proceeding to schedule for the construction of the Coles Group Ltd (ASX: COL) warehouse to start in the early 2021 calendar year.

After the above two facilities are complete, net rental distributions will increase by over 25% and gross assets are expected to exceed $3 billion. After this, there will be sufficient land remaining to provide at least a further 5-year development pipeline.

Brickworks Managing Director Lindsay Partridge said: “The COVID-19 pandemic has only accelerated industry trends towards online shopping, and this is fuelling demand for the company’s prime industrial property. Interest from potential new tenants is strong, with discussions well underway with several parties in relation to additional leasing opportunities within the property trust.”

Trading update

Brickworks said that the Australian building products division has made a strong start, with the first quarter earnings well ahead the prior corresponding period.

Following the completion of the Southern Cross Cement terminal in 2020, construction of the $75 million Austral Masonry plant in Sydney is on track for commissioning in 2021.

At Horsley Park, the company has demolished the old brick kiln, paving the way for the construction of a new $125 million face brick plant, which will be “the most most advanced brick plant ever built.”

North American sales have been below expectations in recent months as a result of the pandemic, with many projects being delayed by state authorities. The surge of infections is creating more uncertainty.

Brickworks is confident that when normal conditions return, there will be improved earnings and growth.

Summary thoughts

Brickworks is a great business in my opinion. It is suffering a little bit in America, but there’s lots to like about its Australian divisions with the property trust and building products.

I think Brickworks is a solid option for long term total returns, particularly with the projected increase in rental earnings from the property trust.

But Brickworks isn’t my highest conviction idea of all, I’d prefer to pick ASX growth shares with more growth potential such as Pushpay Holdings Ltd (ASX: PPH).

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