The last few years haven’t been the best economic environment in which to be a manufacturer and distributor of clay and concrete products, which makes the latest results from Brickworks (ASX: BKW) all the more impressive.
Brickworks has reported an 8.8% lift in revenue to $606.5 million and a 26.9% increase in normalised net profit after tax to $100 million. This translated into a 26.7% increase in earnings per share of 67.7 cents and led the board to declare total dividends in line with the prior year of 40.5 cents per share.
The company’s operations can be broken down into three segments.
A 5.9% increase in Australian housing commencements didn’t appear to provide much of a boost to volumes experienced by the Building Products segment. However management still managed to increase revenues by 3.8% to $568.7 million and earnings before interest and tax by 14.9% to $32.8 million, thanks to “a combination of strong price increases and cost reduction initiatives.”
Brickworks retains a significant number of legacy property assets on its books. The company has cleverly set about realising value from these assets in a number of ways. During the financial year this included the sale of assets from a part-owned Property Trust and also a significant sale to the Property Trust, which realised a large one-off profit.
Brickworks has a unique cross-shareholding in conglomerate Washington H. Soul Pattinson (ASX: SOL). Soul Pattinson has significant investments in coal mining and telecommunications (amongst others) which in turn provides Brickworks with exposure to these investments too. With Brickworks currently trading near its 52-week high of $13.25, this places the firm on a market capitalisation of just under $2 billion.
According to the presentation released by the company, as of 31 July 2013, Brickworks’ 42.72% shareholding in Soul Pattinson had a value of $1.38 billion, which suggests the market is roughly ascribing $600 million plus $320 million in net debt to the remainder of the Brickworks’ group.
Brickworks is a well-run, high quality business. In the past year, the share price has rallied 33.6%, significantly outperforming the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) which has gained 20%. While no doubt the outperformance is partly in anticipation of the improving indicators for home building, the long-term outlook for the firm coupled with its significant stake in Soul Pattinson makes this a company well worth investors keeping an eye on.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.