Brickworks Ltd (ASX: BKW) shares rose after providing a mixed update. What can Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shareholders learn?
Brickworks is one of the largest building product manufacturers in Australia and it’s also a large brickmaker in North America. The business also owns a significant industrial property portfolio.
FY25 update
Brickworks revealed to investors a number of updates for its upcoming finances.
Property
Its property EBITDA (EBITDA explained) for the second half of FY25 is expected to exceed what it achieved in the first half of FY25 because of property revaluation gains and development profits in the second half of FY25.
It’s expecting to report a revaluation gain of $65 million for the industrial property trust, driven largely by a reduction in interest rates. Additionally, a development profit of around $39 million is expected from Oakdale East Stage 2 (a business estate), reflecting development progress by the end of July 2025. The property net rental profit for the second half is expected to be broadly in line with the first half.
Building products Australia and North America
The Australian building products business is expected to deliver FY25 second half EBITDA that’s “slightly ahead” of the FY25 first half.
The North American building products business is expected to deliver positive EBITDA for the second half, with a slightly positive EBITDA for the whole of FY25. This is mostly because of a larger than expected decline in the North American market conditions in the second half of FY25, with ongoing economic uncertainty, elevated interest rates and subdued consumer sentiment contributing to the continuing soft trading.
North American impairment
After looking at the value of its assets on its balance sheet, it expects to recognise a post-tax impairment charge of $75 million, or $102 million pre-tax to the North American division.
That’s because market conditions have remained significantly more subdued than expected during the second half of FY25. This is negatively impacting the short-to-medium-term outlook for the North American business. That includes high interest rates, high construction costs and low consumer confidence.
The reduction in forecast demand, as well as the outlook for a slower-than-expected recovery in market conditions, is compounding pressure on earnings due to the underutilisation of its manufacturing facilities, resulting in diminished cost efficiency and margin compression.
Final thoughts on the Brickworks share price
Considering Brickworks recently signed a deal to merge with Washington H. Soul Pattinson and agreed an exchange ratio, I’m not sure the business is likely to significantly react to a trading update like this.
I’m optimistic about the future for WHSP, so I’m a very happy shareholder. But, both ASX shares are much higher than they were at the start of the year, so I wouldn’t say they are obvious buys now. Other ASX dividend shares could be better buys.
