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Brickworks (ASX:BKW) share price rises after record HY22 report

The Brickworks Limited (ASX: BKW) share price is under the spotlight after reporting a record half-year result. It’s up almost 5%.

Brickworks is Australia’s leading brickmaker. It also has other investments in property and shares.

Brickworks’ record half-year result

The company reported a number of strong numbers:

The statutory net profit was boosted by a significant one-off gain in relation to the deemed disposal of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares after its merger with Milton during the half. Excluding that effect and other significant items, the underlying NPAT grew by 269% to $330 million.

For a complete look at the WHSP result, you can read it in our Rask Media coverage.

Property

Brickworks said that the earnings contribution from property was a standout, with the group’s 50% stake in its industrial property portfolio in western Sydney and Brisbane experiencing a “strong” uplift in valuation after significant demand for prime logistics and warehousing space.

Property revaluations resulted in a profit of $228 million. Development profit of $115 million was also recorded, after the completion of new facilities, including the state-of-the-art Amazon warehouse at Oakdale West.

As developments are completed, rental income continues to grow and net trust income for the half was $17 million, up 7% year on year.

I think that this division is key for driving the Brickworks share price higher in the next few years.

Building products

The company reported that the Australian building products division saw EBIT (EBIT explained) rise 66% to $27 million. The lift of COVID-19 restrictions from Melbourne and Sydney saw both markets recover well, with sales momentum increasing steadily during the period.

Despite supply chain difficulties and inflationary cost pressures in some areas, margins were higher due to improved production efficiency and price increases across most business units. Austral Bricks was particularly strong, with market share growth and lower manufacturing costs.

It’s building the most advanced brick plant in the world, which should be completed in the next 12 months.

In January, Brickworks purchased 121 hectares of clay lands at Bringelly, effectively replacing the clay resource at Oakdale East and ensuring that brick operations are not adversely impacted by the release of land for property development.

In North America, sales revenue of $187 million in the first half was significantly higher than the prior corresponding period, driven by the acquisition of Illinois Brick Company in August, and an increase in sales to the southern residential market, primarily in Texas.

However, US EBIT was down 70% to $1 million, with repeated interruptions to manufacturing operations. Labour constraints across the industry are resulting in higher wage rates to attract and retain staff.

Launch of new operational property trust

Brickworks said it has been exploring opportunities to realise value from its portfolio of operational land and is in advanced discussions in relation to a potential transaction that would include the launch of a new joint venture property trust in partnership Goodman Group (ASX: GMG), comprising a portfolio of properties tenanted by building products.

An initial portfolio of 15 building products properties, with a total gross value of around $415 million, has been identified for inclusion in the first stage of this new operational property trust.

The sale and leaseback of these manufacturing sites will deliver gross cash proceeds of around $200 million and an estimated pre-tax profit of between $260 million to $280 million after the valuation uplift into this new trust.

Over the long-term, some of those properties would then have the potential for development and greater utilisation.

Outlook for the Brickworks and share price

Development activity within the property trust continues at an unprecedented scale. There is also potential for further land sales into the trust. Rental income and the asset value are forecast over the coming years.

The operational property trust is an exciting move, unlocking more value.

Wet weather has hurt construction activity on the east coast, but underlying demand remains strong. However, recent building approvals data suggests a period of softer demand is likely after current projects are completed.

In North America, ongoing margin pressures are expected to persist in the second half.

WHSP is expected to deliver a stable and growing stream of earnings and dividends over the long-term.

I think Brickworks is one of the best ASX dividend shares around. The unlocking of value of its operating properties sounds like a good idea, so the market will hopefully recognise this value over time.

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