The Brickworks Limited (ASX: BKW) share price is under the spotlight after giving an update at its FY24 AGM.
Brickworks is one of the largest building product manufacturers in Australia. It also makes bricks in North America.
FY25 trading update
Brickworks said that within its building products division, subdued demand is expected to persist for the next 12 months in both Australia and North America.
The company noted in Australia, the significant housing undersupply has emerged as a key priority across all levels of government, “driving ambitious building targets and long-overdue reforms to facilitate increased housing supply.”
Brickworks said:
We expect this to drive increased demand for our building products over the medium and longer term. In North America, easing monetary policy is expected to support an increase in activity, particularly in the key non-residential segment, where many projects have been delayed during the recent period of high interest rates.
The company believes that as conditions improve, its building products business is well placed to deliver strong returns after following its recent factory investments, re-structuring and assessing its portfolio to decide which ones should stay open and where to remove production (called rationalisation).
On top of that, Brickworks said that it has recently seen industry rationalisation in some markets, such as roof tiles. With industry capacity removed, its Bristle Roofing business is now operating at a much higher plant utilisation and generating improved returns.
After a period of significant investment, Brickworks’ short-term priority is to maximise cash generation.
Investments and property
Brickworks expects its investments division to continue to deliver a “stable and growing stream of earnings and dividends over the long term”.
Within the company’s property division, the business is expecting significant growth in rental income from its property trusts in the coming years as it develops existing estates and benefits from a significant rental increase as existing leases expire.
Brickworks says structural trends towards e-commerce and the digital economy will “continue to drive demand” for its prime industrial facilities for many years to come. It’s looking to identify opportunities within its portfolio to expand its property development pipeline.
Final thoughts on the Brickworks share price
I think Brickworks is one of the most underrated ASX industrial shares, with it trading significantly under its underlying balance sheet value, with attractiveness of its property and investment assets.
A recovery of the building products division is also on the cards in the medium-term.
I’d call Brickworks shares a buy today at the current valuation.
