3 reasons why the Brickworks (ASX:BKW) share price is a buy

There are a number of reasons why the Brickworks Limited (ASX:BKW) share price is a buy, including its quality industrial property trust.

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There are quite a few compelling reasons why the Brickworks Limited (ASX: BKW) share price looks like an interesting idea.

Brickworks is a building construction business that has been operating for many decades. It manufactures and sells bricks, pavers, roofing, precast and so on in Australia. In the US it has a sizeable brickmaking segment. 

There are a number of really good reasons to consider Brickworks shares:

Strong dividend record

For the income-seekers, Brickworks has produced a lot dividend income. Indeed, for over 40 years Brickworks has maintained or grown the dividend in every one of those years. There hasn’t been a single dividend cut in that time despite the recessions.

The Brickworks dividend is supported by its diversified asset base, including a large shareholding of Washington H Soul Pattinson and Co Ltd (ASX: SOL).

Dividends can form a sizeable part of the overall returns, particularly if the share market isn’t firing on all cylinders.

At the current Brickworks share price, it offers a grossed-up dividend yield of 4.2%.

Industrial property trust

One of the main segments of the Brickworks business is that it owns 50% of a high quality industrial property trust with its joint venture partner Goodman Group (ASX: GMG).

This property business is used to build industrial properties on excess land that Brickworks sells into the trust.

COVID-19 has accelerated the demand for industrial properties in light of the logistics and e-commerce demand.

It’s currently working on two huge warehouses that will have the latest technology in them. They will generate a lot more rent for the trust.

When those two projects are completed it should increase the capital value and profit.

There is still enough land for quite a few years of development and this can drive the net asset value of Brickworks higher during this development phase.

Brickworks share price and asset value

Brickworks has a lot of assets. When you add up all of the assets in the Australian building products business, the US building products business, the Soul Patts shares and the stake in the property trust, it comes to a number materially higher than the current Brickworks share price.

At the time of the Brickworks FY21 half year result, it said that its total inferred asset backing was $4.1 billion (including the $479 million of net debt). Per share, that equated to a value of $27. That means the current Brickworks share price is at a 24% discount compared to that inferred value from a few months ago.

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Returns As of 15th February 2021

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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