There are at least three reasons why Brickworks Limited (ASX: BKW) shares are a compelling investment option.
Reason one: A construction recovery in Australia
Whilst the building products divisions may not make up a majority of the underlying value of Brickworks shares, the performance of its construction divisions are important for the Brickworks share price.
In recent months Brickworks has seen a recovery in the Australian construction industry after the initial impacts of COVID-19.
According to Brickworks' most recent trading update, in Australia the company has made a strong start to FY21 with first quarter earnings well ahead of the prior corresponding period. Its home builder customers have a solid pipeline of work for the remainder of the financial year, underpinned by various government stimulus measures. Brickworks is making progress on its $75 million Austral Masonry plant as well as its $125 million face brick plant at Horsley Park.
However, there isn't the same sort of recovery going on in the US. COVID-19 daily infections are above 200,000 in the US and the construction industry is being impacted. Sales have been below expectations in recent months with a number projects being deferred by state authorities due to financing concerns, as well as disruptions to manufacturing operations.
Reason two: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares
Soul Patts is an investment conglomerate that has been listed since 1903. Brickworks has owned shares of Soul Patts for decades at this point.
Soul Patts has a diversified portfolio of assets. Some of its positions include TPG Telecom Ltd (ASX: TPG), Brickworks, New Hope Corporation Limited (ASX: NHC), Australian Pharmaceutical Industries Ltd (ASX: API), Bki Investment Co Ltd (ASX: BKI) and Milton Corporation Limited (ASX: MLT). It also has private investments in areas like financial services, resources and swimming schools.
Some of Soul Patts' most recent investments have been focused on agriculture. It also recently tried to acquire aged care operator Regis Healthcare Ltd (ASX: REG), though its public offer was knocked back quickly.
Soul Patts makes up a big chunk of the underlying Brickworks asset value. The Soul Patts share price has risen by 17% over the past two months and by 54.8% over the last six months.
Reason three: A growing industrial property trust
Brickworks owns a 50% stake in an industrial property trust along with real estate giant Goodman Group (ASX: GMG).
The idea of the trust is for Brickworks to sell its excess land that it no longer needs into the trust and then industrial properties (like warehouses) are built on that land.
The warehouses can then benefit from long-term capital growth whilst also paying strong annual rental profit to Brickworks and Goodman.
The trust's net asset growth has helped push the Brickworks share price higher over the years.
At the moment the trust is working on building two huge, high-tech warehouses for Coles Group Ltd (ASX: COL) and Amazon. Once the warehouses are completed it's expected to increase the gross assets of the industrial property trust to at least $3 billion and it will grow the net profit distributions from the trust by at least 25%.
Brickworks said that the Amazon facility is due to be completed in September 2021. The construction of the Coles distribution warehouse is expected to commence in early calendar 2021.
The building products business said that it has sufficient remaining land to provide at least a further five-year development pipeline.
At the current Brickworks share price it offers a trailing grossed-up dividend yield of 4.3%. It's also priced at 18x FY21's estimated earnings.
