The Brickworks Limited (ASX: BKW) share price is down more than 2% after revealing a painful FY24 update.
Brickworks is the largest brickmaker in Australia. It also has a number of other Australian building product divisions including roofing, masonry and stone, timber battens and cement. The company also has brickmaking operations in the US.
Brickworks FY24 impairment
The building products business has been looking at the carrying values of its businesses as at 31 July 2024.
Following that review, Brickworks will include a total impairment charge of $172.4 million before tax and $123.5 million after tax. Austral Masonry has taken a before-tax hit of $78.1 million and Brickworks North America’s impairment is $94.3 million before tax.
This doesn’t mean those businesses can’t generate any less cashflow or future profit, it just reduces how much Brickworks thinks certain asset values on the balance sheet are worth.
What is hurting those businesses?
Brickworks said there has been an accelerated deterioration of multi-residential building activity in the second half of FY24, with June 2024 commencements across Australia forecast to be at the lowest level for more than a decade. Some of Austral Masonry’s key markets of Sydney and Brisbane have seen a severe decline in 4+ story high-rises.
This will result in a delay to experiencing the full benefits from increased investments in Austral Masonry, after scaled-back production output in response to the current market.
Higher costs across Austral Masonry have yet to be fully recovered by recent price increases.
For Brickworks North America, there has been significantly reduced activity during the second half of FY24. The outlook for non-residential building in key markets of the Northeast and Midwest regions of the US has weakened.
After closing some plants and upgrading others, subdued building activity has resulted in scaled back production output and a delay in benefiting from initiatives.
Brickworks also noted “strong competition” in the single-family housing segment, which has resulted in “price and volume pressure” in certain regional markets.
Is the Brickworks share price sell-off an opportunity?
Specifically on the building products side of things, I’d view this as a cyclical opportunity. There has been strong population growth in both the US and Australia, and I think there will be a rebound of demand once interest rates reduce and conditions improve.
But, I’m particularly excited by Brickworks shares because of its diversified and excellent asset base of property and other investments. I’d call it a buy right now and I’m thinking about buying some shares as soon as I can.
