The share price of building materials company Brickworks Limited (ASX: BKW) opened over 2% higher today after the company released a very positive trading update to the market.
Brickworks announced that it is anticipating significantly better-than-expected earnings for the current financial year due to particularly strong demand for its products on the east coast.
There have been fears of a slowdown in the building industry in recent months, but management has stated that the strong momentum seen in the first-half has continued unabated. In the first-half Brickworks delivered underlying net profit after tax growth of 19% to $74 million. So things are looking very positive for the full year in my opinion.
Managing Director, Mr. Lindsay Partridge has advised that the short term outlook remains very positive thanks to a long pipeline of work and price rises being successfully implemented into its major markets.
Further to this, the company's property development segment has been producing solid results too. Today's update revealed that a multi-national consumer goods company committed to a 36,870 metre squared warehouse and office facility on a 10-year lease term at Oakdale Central. DSV Air & Sea has also committed to a 8,275 metre squared warehouse and office facility on a five-year lease term at the same location.
It didn't stop there either. At Oakdale South, the company has made progress on the sale of 27.9 hectares of land. These include agreements for the sale of 6.4 hectares to Toyota Australia and 7 hectares to Sigma Pharmaceutical Limited (ASX: SIP), subject to DA approval.
The eventual sale of all 27.9 hectares will generate cash proceeds for the property trust in the region of $90 million. After which the company has a further 43 hectares in the works at Oakdale South to focus on. It will soon start the process of developing the land to meet the pre-commitment market.
All in all, I believe things are looking very positive for Brickworks at the moment. A slowdown in the Australian building industry would be a big blow, but as things stand things appear to be as buoyant as they have been.
At just under 15x estimated FY 2016 earnings, the shares are trading at a discount to industry peers Adelaide Brighton Ltd. (ASX: ABC) and Boral Limited (ASX: BLD). These two shares are changing hands at just under 19x estimated FY 2016 earnings at present.
For this reason I see Brickworks' shares as being a good addition to a balanced portfolio based on management's positive outlook.
