The Brickworks Limited (ASX: BKW) share price has traded slightly lower today despite a top half-year report.
Here are the key takeaways from the Brickworks first half report:
- Revenue rose 19% to $429 million
- Profit rose 48% to $111 million
- A fully franked dividend of 17 cents per share was declared, up from 16 cents per share last year
The company's three divisions, Building Products, Land and Development, and Investments, contributed to the positive result.
Building products, which manufactures a basket of products for the construction industry, upped its profit 2.1%. Brickworks Managing Director Lindsay Partridge said the result was boosted by higher levels of activity in the eastern states.
"Elevated levels of construction activity across the east coast continue to drive strong demand for our products, resulting in higher earnings for east coast operations," he said. "Austral Bricks performed particularly well, delivering a significant increase in margins following the growth in premium, higher priced products on the back of a sustained investment in product development and marketing over many years."
With house prices rising rapidly in Sydney and Melbourne, the company struggled to keep up with the demand for its products. So much so it was forced to use its interstate networks to fulfil customer orders.
By contrast, over on the west coast, the company is restructuring its operations in response to subdued market conditions.
The value of Brickworks' Investments improved 78% to $47.6 million during the half. This division includes the company's cross-shareholding in Washington H. Soul Pattinson & Co. Ltd (ASX: SOL).
Looking ahead, Mr Partridge said the short term appears bright, but rising energy prices might hurt its east coast operations.
"The short term outlook for Building Products remains positive, with continued strong building activity in our major east coast markets set to support earnings in financial year 2017," Partridge said. "Although we have secured gas supply until the start of 2020, recent gas contract negotiations have resulted in a 76% price increase across our east coast operations."
Despite efforts to minimise the effect, the price increases will result in a $20 million increase in annual costs within two years.
Buy, Hold or Sell
In my opinion, I think it would be better to get a diversified exposure to Brickworks through Washington H. Soul Pattinson shares than owning shares directly.
However, if you are considering Brickworks shares, Adelaide Brighton Ltd. (ASX: ABC) is a competitor that is also worthy of a closer look.
