Brickworks Limited shares slide despite rising dividends

This morning bricks and building products manufacture Brickworks Limited (ASX: BKW) posted a net profit of $97 million on revenue of $396.2 million for the half-year period ending March 31 2018. The profit and revenue were down 6.7% and up 7% on the prior corresponding period (pcp). The adjusted profit (backing out one offs) was $115.6 million, up 4% on the pcp.

The company will pay an interim dividend of 18 cents per share on underlying earnings of 77.5 cents per share. The dividend is up 1 cent on the pcp and with shares changing hands for $15.31 this morning it offers a trailing yield of 3.4% plus the tax effective benefits of full franking credits.

The underlying earnings per share were also up 3.7% on the pcp and the company sells for just 11.7x FY 2017’s earnings, while its outlook remains supported by increasing residential building activity across Australia.

Brickworks also has a cross ownership structure with investment conglomerate Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and received $32.7 million in dividends from Soul Patts over the period. In total it owns nearly 43% of Soul Patts that gives it an ownership stake worth $1.7 billion.

The cross-ownership stake enforces the Milner family’s controlling grip over both companies, with a recent attempt by Perpetual Limited (ASX: PPT) to force its unwinding thrown out by the courts in an embarrassing setback for the fund manger.

Brickworks has now delivered five consecutive years of profit and dividend growth in line with Australia’s residential property bull market. Over the past 10 years it’s delivered total shareholder returns of 5.8%, compared to 5.2% from the S&P ASX All Ordinaries index.

Its core building products business largely operates under the Austral brand and delivered $53.6 million in EBITDA (operating income) over the period, up 18% in a strong result attributed to elevated building activity across the nation.

Management did complain of rising energy prices and union activity in Victoria hurting margins and its competitive bidding respectively.

The group also has a property development and management business that contributed earnings before interest and tax of $49.5 million over the period.

Net debt edged 8.6% higher over the period to $318 million.

Foolish takeaway

This was another solid result for a business that offers investors some defensive revenue streams, reliable dividends and an experienced management team. It’s not going to shoot the lights out, but at the right price is a reasonable option for conservative investors.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has recommended Brickworks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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