Brickworks (ASX:BKW) share price jumps 8% on record property earnings

The company is having a bumper day on Wednesday, surging to new, all-time highs.

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The Brickworks Limited (ASX: BKW) share price has pushed into record territory this morning after the company released a trading update for FY21.

At the time of writing, the building products company’s shares are up 8.14% to $22.73, topping their previous record high of $21.54 reached on 7 May.

What’s driving the Brickworks share price?

The Brickworks share price is on the move this morning after the company announced a $100 million revaluation profit within its Joint Venture Industrial Property Trust.

Management commented on the industrial property scene in Sydney, saying:

Since the end of the first half, there has been a number of significant industrial property transactions in western Sydney. The pricing of these transactions has reinforced the strong investor appetite for prime industrial property assets.

Given the number of sales and the steep movement in transaction pricing, an independent valuation of our Property Trust assets has been completed, and this process has resulted in further compression of capitalisation rates across our portfolio. As such, a revaluation profit of around $100 million will be recorded in the second half, representing Brickworks’ 50% share of the valuation gain.

Brickworks now expects to deliver record earnings from its property portfolio for FY21, with property earnings before interest and tax (EBIT) in the range of $240 million to $260 million, up from $129 million a year ago.

Building products segment gathering momentum

Beyond real estate, Brickworks is also a leading manufacturer of a broad range of building products. Within the trading update, the company reported that sales momentum was picking up in both Australia and North America.

Management reported that:

In Australia, the significant uptick in housing approvals is now translating to increased building activity, with our sales particularly strong in Queensland and Western Australia over recent months. That said, the availability of some materials, such as timber for house trusses, is an issue in some areas, with the resultant delays likely to flatten and extend the duration of the existing pipeline of work.

While no dollar figure guidance was provided, the company expects EBIT from building products in Australia to deliver a year-on-year increase in FY21.

The company’s North American division has been the hardest hit by the pandemic, especially in the first half of FY21. However, the update advised that building activity in the United States is now ramping up, underpinned by the country’s vaccine program.

Management believes there will be better days ahead, suggesting that “a strengthening of commercial sales is anticipated as delayed and deferred projects re-commence over the coming months”.

Despite the challenges in the first half, Brickworks expects US dollar EBIT from its North American building products division to finish FY21 with a year-on-year improvement as well.

How has the Brickworks share price been performing?

The Brickworks share price is up by around 18% year to date compared to the 11.33% increase in the S&P/ASX 200 Index (ASX: XJO).

A key catalyst that has helped prop up the company’s share price recently, alongside today’s announcement, was its half-year results delivered on 25 March. The Brickworks share price jumped by more than 5% on the day of the announcement.

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Brickworks. 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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