Why the Brickworks (ASX:BKW) share price is up more than 10% this week

Brickworks is benefiting from the booming conditions for property.

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The Brickworks Limited (ASX: BKW) share price has gone up more than 10% this week after giving investors an update.

What happened with Brickworks?

Australia’s largest brick manufacturer gave a trading update about its Australia and North America divisions. It’s seeing sales momentum gathering in both locations.

Brickworks’ building products divisions in both Australia and North America are both expected to record higher earnings before interest and tax (EBIT) in FY21 in local currency terms. However, with two more months of trading activity to come, Brickworks said it’s too early to accurately forecast the extent of the EBIT uplift.

However, Brickworks highlighted to investors that the Australian division’s EBIT in the prior year included a significant write-back of costs to take into account the impact of the COVID-19 pandemic. 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.

In the US, operations in North America have been harder hit by the pandemic, particularly in the first half of FY21. However, with the vaccine program in the US well advanced, building activity in the US is now ramping up, according to Brickworks. It has already seen a strong rebound in sales volume to housing customers in May, with this segment currently making up around 60% of total sales.

Property revaluation

It also announced this week a “significant” revaluation profit within its joint venture industrial property trust with Brickworks’ expected share to be around $100 million. This will contribute to record property underlying EBIT of between $240 million to $260 million, up from $129 million in the prior year.

Brickworks managing director Mr Lindsay Partridge said:

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 assets.

In addition, property earnings are expected to be boosted further by the completion of developments at Oakdale East, currently forecast to occur in July.

We have seen strong demand and sustained growth in the value of our Property Trust over a number of years. The COVID-19 pandemic has only fuelled this growth, by accelerating industry trends towards online shopping and increasing the importance of well-located distribution hubs and sophisticated supply chain solutions.

The Amazon facility in Oakdale West is expected to be completed in the first half of FY22, with the Coles Group Ltd (ASX: COL) distribution warehouse now under construction and expected to be completed early in FY23.

Broker opinion on the Brickworks share price

The broker Ord Minnett is still positive on Brickworks, with a price target of $26. It noted the recovery in both the Australian and US building product segments.

However, Ord Minnett believes that the demand for industrial property could lead to a continuing good performance for Brickworks.

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Motley Fool contributor Tristan Harrison 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 and COLESGROUP DEF SET. 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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