The Brickworks Limited (ASX: BKW) share price could still be worth looking at despite the company's recent COVID-19 NSW update.
What was in the update?
The building products business said that the restrictions are now having a "significant" impact across its operations.
In June and early July, its brick sales in NSW were approximately in line with local production capacity, however dispatches abruptly reduced by 80% during the pause in construction activity across Sydney in late July.
Brickworks noted that it's facing the most severe restrictions that the business has faced since the onset of the pandemic, with sales limited to the ACT and regional areas only.
The company said that the partial re-commencement of construction activity in August has resulted in some improvement, however brick sales remain at only 50% of pre-lockdown levels, resulting in a number of storage yards reaching full capacity. It has been forced to temporarily lower production at two of its five kilns across the state, representing 30% of total production capacity.
Significant production volume is being transported south, to meet continued strong demand in Victoria.
Brickworks also said that it's experiencing a similar impact across its other building products businesses, with operations at its precast facility in Wetherill Park significantly reduced.
The Brickworks share price fell 1.5% after this update.
Brickworks noted that NSW is its largest and most profitable market, so the NSW restrictions are now having a material impact on earnings for its Australian building product businesses.
The company also pointed out that various capital projects are being affected and delayed due to restrictions.
Development activity within the property trust has also been affected, with various Oakdale Estates being impacted by numerous closures and reduced workforce numbers.
Brickworks said that the timing of the restrictions meant the NSW lockdown only impacted the last two weeks of FY21 and would not be material for the financial year that has just finished.
FY21 Australian building product earnings before interest and tax (EBIT) is expected to be 35% higher than FY20.
In North America, trading in July was slightly softer than expected, leading to FY21 EBIT expected to be below last year, in local currency terms.
'Property' will deliver a record EBIT result of $250 million according to management.
However, looking ahead, management said that with the outlook across the entire country becoming increasingly uncertain, things could change at any moment for parts of Australia where demand is still largely unaffected – like Brisbane and Melbourne.
Are there any positives to look forward to for the Brickworks share price?
Firstly, NSW has announced that "unoccupied construction sites across Greater Sydney, including the Central Coast, Blue Mountains, Wollongong and Shellharbour, will operate at 50 per cent capacity from this Wednesday with enhanced COVID safe measures helping to sustain industry, boost the economy and keep workers safe."
This could mean that demand for Brickworks products is somewhat reignited. It may also mean an acceleration of the work for the industrial property trust.
Brickworks has two key assets that are not its building products divisions and perhaps aren't being as affected as the construction industry.
There's the shareholding of investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which Brickworks owns around 40% of. This business has resilient earnings and has a commitment to stable and growing dividends for shareholders. Its biggest holding, TPG Telecom Ltd (ASX: TPG), continues to provide telecommunications services.
The industrial property trust that Brickworks owns half of is probably still generating rental profit. The long-term outlook still seems positive with demand for logistics and distribution properties rising, particularly with the trend towards e-commerce. Once the latest warehouse projects are completed, a large rise of the value and net rent is expected.
At the current Brickworks share price it has a trailing grossed-up dividend yield of 3.5%.
