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Why the Brickworks Limited (ASX:BKW) share price is charging higher today

Much to the relief of its shareholders, the Brickworks Limited (ASX: BKW) share price is finally heading in the right direction again.

In morning trade the building materials company’s shares are up 6% to $15.90 on the day of its annual general meeting. This gain has reduced its two-week decline to 8.5%.

Why are Brickworks’ shares charging higher today?

Ahead of its annual general meeting, Brickworks released a first quarter update and outlook for the year ahead.

According to the release, the company’s Property division has had a strong start to the year.

CEO Lindsay Partridge explained: “Continued capitalisation rate compression, the completion of new developments at Oakdale South, and the settlement of the previously announced Punchbowl sale, looks set to result in a record Property contribution in 2019.”

The same cannot be said for the company’s Building Products division. During the first quarter the division posted materially lower earnings compared to the prior corresponding period.

Mr Partridge advised that: “Sales volume is marginally down, impacted by wet weather in October, particularly in New South Wales, and tightening credit availability causing project delays. In addition, manufacturing costs have been hit by higher energy prices and a series of one-off production issues, that are now resolved.”

However, despite the difficult first quarter Mr Partridge believes that: “Market fundamentals remain supportive for new housing construction, with employment levels healthy, low interest rates and high immigration levels. Demand in Victoria is at unprecedented levels, and with the improved weather in New South Wales, overall brick sales across the country in November are tracking above the prior year.”

This means that the increased earnings from its Property division and the contribution from its Glen-Gery acquisition are expected to “more than offset a decline in Australian Building Products earnings in 2019.”

Should you invest?

I suspect that the market had expected Brickworks to deliver a far weaker result in FY 2019 than the company has now guided to. So I can’t say I’m surprised to see its shares charge higher today.

At a little under 12x trailing earnings I think Brickworks shares are about fair value now.

However, I’d suggest investors planning to buy Brickworks consider buying the shares of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) instead.

This investment house owns approximately 65% of Brickworks, so offers decent exposure to the company. Its diverse portfolio also provides exposure to the likes of Australian Pharmaceutical Industries Ltd (ASX: API) and TPG Telecom Ltd (ASX: TPM).

Like Brickworks for its dividend? Then check out these dividend stars that have been rated as buys.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Brickworks and TPG Telecom Limited. 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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