The Brickworks Limited (ASX: BKW) share price is tumbling lower after the company released an update on COVID-19 impacts and its FY21 update.
About Brickworks
Brickworks is a manufacturer of construction products and is the biggest brick manufacturer in Australia. It has a diverse portfolio of assets and businesses with its company broken into four divisions – Building Products Australia, Building Products North America, Industrial Property and Investments.
New Covid-19 impacts on Brickworks
Brickworks said that COVID-19 restrictions in NSW are now having a significant impact across its operations.
Management said that brick sales in NSW remained reasonably steady in June and early July but dispatches abruptly reduced by 80% during the pause on construction across Sydney in late July.
The company said that construction partially resuming in August has shown some improvement, however brick sales remain at 50% of levels seen before the NSW lockdowns.
With the slow down in sales this has resulted in some of Brickworks’ storage yards reaching full capacity. This has forced the company to temporarily cut production by 30%.
Brickworks said that the impact is similar across its other building products businesses and it has temporarily reduced production and staff in several manufacturing facilities. However management said it has no intention of laying off staff and intends to preserve employment through this period of uncertainty.
Brickworks also noted that major capital projects are being affected by restrictions, namely disruptions to the commissioning process at its new masonry plant in Oakdale East and construction of its new brick facility at Horsley Park.
FY21 earnings update
Management said that its FY21 result will not be materially impacted by the NSW restrictions given that the restrictions started just two weeks before the end of its FY21, ending 31 July 2021.
Brickworks expect FY21 EBIT (EBIT explained) from its Building Products Australia segment to finish around 35% higher than FY20.
Its North America division experienced “slightly softer” trading than forecasted, which will make FY21 EBIT slightly lower than the prior year (in local currency terms).
The company’s Property division will deliver record EBIT of around $250 million for FY21, which is within the advised range.
Brickworks said that it is unable to provide an update on its Investment division, which is driven by It’s 39.4% stake in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Brickworks said that due to the “lack of visibility” of investment earnings in the second half of FY21 it is unable to provide guidance on net profit after tax (NPAT).
Brickworks will release its full FY21 results on 23 September 2021.
Management comments
Managing Director Mr. Lindsay Partridge said: “As our largest and most profitable market, the restrictions in NSW are now having a material impact on Building Products Australia earnings. With the situation remaining highly volatile and unpredictable, it is difficult to quantify the ongoing impact and we have no confidence in being able to accurately forecast business performance until there is a full re-opening of construction activity across the state.
“…Despite the lockdowns in Melbourne and Brisbane, demand in these cities remains largely unaffected at this stage. However, with the outlook across the entire country becoming increasingly uncertain, this could change at any moment.”
Final thoughts on the Brickworks share price
This is a bit of a blow for Brickworks and shareholders, but maybe not that unexpected with COVID-19 still being a factor that society is having to navigate, particularly in Sydney right now.
If looking long term, I believe that the positive fundamentals of Brickworks as an investment idea are still present and this is a blip that will hopefully correct itself once COVID-19 restrictions lift.
The Brickworks share price is down around 2% at the time of writing and if it continues to drop I will be considering if this means that the shares are ‘on sale’ and might be good value.
