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Record earnings: Why the Brickworks (ASX:BKW) share price is rising

The Brickworks Limited (ASX: BKW) share price is rising after giving an update about its property progress.

Brickworks is one of the largest building products businesses on the ASX. However, it also owns half of a large and growing property trust which owns and builds industrial properties.

Brickworks expects strong HY22 for property

The ASX company is expecting to report record property earnings in the first half of FY22, with property EBIT (EBIT explained) to be in the range of $290 million to $310 million if there are no more transactions.

That compares to property EBIT of $253 million for the whole of FY21.

Brickworks put this strong performance down to COVID-19 accelerating industry trends towards online shopping and increasing the importance of well-located distribution hubs and sophisticated supply chain solutions.

The company said that its properties have just gone up further in value after an independent revaluation process, resulting in the capitalisation rate (meaning the property yield) dropping by 50 basis points to 3.6% across the leased assets in the property trust.

The new huge, state of the art Amazon facility is due to reach practical completion at the end of December. This completion, together with others at Oakdale South, will result in “significant development profits”.

It’s no wondering that the Brickworks share price is rising in response to even bigger profits. FY22 is looking good.

New land purchased

Brickworks also announced that it is buying 121 hectares of land at Bringelly in South West Sydney.

This large amount of land will be used as a clay resource to support Austral Bricks operations in Sydney, which will replace the existing clay resource at Oakdale East.

Brickworks Managing Director Lindsay Partridge said:

Given the strong industrial property demand and increasing value of our land at Oakdale, our Austral Bricks plants in western Sydney are currently undergoing a major renewal and rationalisation program. This is highlighted by our new face brick plant at Horsley Park, currently under construction. 

The completion of this plant in around 12 months’ time, will allow brick operations to be consolidated at the Horsley Park Plant 1 and 2 site, and the remaining 75 hectares of land to be released at Oakdale East, where plant 3 is located.”

Brickworks outlined that the Oakdale East land that is released will then be sold into the property trust, resulting in a large one-off profit and extending the development pipeline in order to meet the unprecedented demand for industrial development.

This land that’s being purchased will ensure that its brick operations are not adversely impacted.

Summary thoughts on Brickworks and the share price

I’m not sure about what the property construction market is going to look like over the next few years, but this seems very promising in my opinion.

Brickworks is creating enormous value with the property trust and it seems things are very promising over the next few years with its current property developments.

I think Brickworks is one of the leading ASX dividend shares around, I’d be happy to own it in my portfolio for income and the potential long-term capital growth.

If you're anything like me, you might be thinking now is a good time to have cash 'sitting on the sidelines'.

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