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

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It isn’t only ASX big bank shares that are storming higher today. The Brickworks Limited (ASX: BKW) share price is also surging and is the best performing large cap this afternoon.

Shares in the building materials group rallied 6.8% to $19.95 during lunch time trade and is on top of the S&P/ASX 200 Index (Index:^AXJO) leader board.

That’s ahead of the second-best performer, the Westpac Banking Corp (ASX: WBC) share price with its 6.5% gain and National Australia Bank Ltd. (ASX: NAB) share price on a 6.4% increase.

ASX big bank stocks are racing ahead on news that the federal government is planning on winding back responsible lending rules. This will make it much easier for banks to lend.

Broker upgrade sends Brickworks share price racing

In Brickworks case, the outperformance of the BKW share price coincides with a broker upgrade following its full year results.

Morgans upgraded the stock to “add” from “hold” as Brickwork’s FY20 results came in ahead of expectations.

While group earnings before interest and tax (EBIT) fell 34% to $206 million, that was still above Morgans’ estimate of $193 million.

“Overall, the results for the operational Brick businesses (particularly 2H results from Building Products Australia) were better than feared and Property earnings also slightly beat expectations,” said the broker.

Building activity showing signs of recovery

This was enough to offset weaker investment earnings contribution from Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

Another positive was the outlook from Brickworks. The industry is doing it tough as the COVID-19 pandemic limits construction activity but there’s light at the end of the tunnel for the group’s Building Products Australia (BPA) division.

“Clearly, risks remain to activity levels in the largest detached housing markets of NSW and VIC (c60-65% of BPA revenue), with HomeBuilder proving less effective in Sydney and the impact of Government lockdowns in Melbourne remaining uncertain,” added Morgans.

“Nonetheless, BKW noted it’s possible that building activity across most of Australia could be stronger than expected over the next 6-12 months.”

North America a mixed bag

The group’s North American operations also stands to benefit from cost cutting initiatives in FY20 and recent acquisitions of Redland Brick and Sioux City Brick.

However, slowing non-residential and multi-res (higher margin) markets in NA could drag.

What is the BKW share price worth?

Nonetheless, this isn’t stopping Morgans from lifting its price target on the stock to $19.98 from $18.24 a share.

With the big run-up in the BKW share price though, this doesn’t leave much meat on the bone for investors.

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Motley Fool contributor Brendon Lau owns shares of National Australia Bank Limited and Westpac Banking. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company 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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