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FY22 update: Why I think the Brickworks (ASX:BKW) share price looks compelling

The Brickworks Limited (ASX: BKW) share price looks compelling to me after the release of its FY22 update to the market.

Brickworks is one of the largest building product companies in Australia. It also has investment and property assets, as well as a growing brickmaking division in the US.

FY22 AGM update

The construction product ASX share is holding its annual general meeting (AGM) where it gets to tell investors how it performed in FY21 and provide a few comments about FY22.

In FY21, it grew its net profit after tax (NPAT) to a record of $285 million. The full year dividend increased by 3% to $0.61 per share.

Australia FY22 progress

Looking at a trading update for FY22, the building products Australia division has made a steady start according to management, with first quarter revenue and EBITDA (EBITDA explained) slightly ahead of last year.

Brickworks said that in the first quarter, brick sales across all states that were not impacted by restrictions were considerably higher than the prior corresponding period. The company thinks this reflects the strong underlying demand across the country, with a large backlog of detached housing construction work in the pipeline.

Sydney and Melbourne demand is recovering, with brick despatches increasing steadily.

The performance of its Australian division can be important for the Brickworks share price.

Brickworks continues its major investment program so that it continues to be in a strong competitive position. The commissioning of its new masonry plant in Sydney is now well advanced. Management claimed it’s one of the most advanced masonry plants in the world, and will deliver lower costs and a broader product range.

Construction of the brick facility at Horsley Park in Sydney is well underway and is expected to be completed in 12 months.

USA FY22 update

The North American division has seen a significant uplift in revenue, primarily due to the acquisition of brick distributor Illinois Brick Company (IBC).

Management are pleased with the initial contribution from these IBC stores. However, it’s experiencing cost pressures across the supply chain, including direct production costs and transportation. It’s also having to pay higher wages to attract and retain staff.

It’s also selling a higher proportion of product to the lower margin residential segment.

Why I’m optimistic about the Brickworks share price

There are two areas of Brickworks that can deliver attractive growth over the longer-term. One is its 26.1% shareholding of investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

WHSP recently merged with Milton Corporation, giving the business increased scale, diversification and liquidity to pursue more investment opportunities. Brickworks management expects WHSP to deliver superior long-term returns and consistent dividend growth well into the future.

The WHSP investment provides strong diversification and stability for Brickworks and its asset base.

Brickworks is also benefiting from its joint venture industrial property trust. There is strong demand for prime industrial property, with a huge pipeline of work.

This property trust is close to finishing a state of the art Amazon facility. Construction of the even larger Coles Group Ltd (ASX: COL) is also well advanced and is expected to be completed towards the end of 2022.

The completion of these huge facilities, and the long pipeline of other pre-committed developments, is expected to result in an increase in leased assets of around $1.2 billion and gross rent of $50 million over the next two years.

I think Brickworks is one of the most compelling industrial ASX dividend shares. I’d happily add it to my portfolio at the current level.

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At the time of publishing, Jaz owns shares of WHSP.