Why the Brickworks (ASX:BKW) share price has beaten the ASX 200 in the last year

The Brickworks share price has outperformed the ASX 200 in the last year.

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The Brickworks Limited (ASX: BKW) share price has risen by 33% over the last year, beating the S&P/ASX 200 Index (ASX: XJO) return of 22.5%.

A lot has happened over the past year. The world learned of the efficacy/effectiveness of the COVID-19 vaccines that are now going into arms around the world. That may or may not explain some of the returns of the ASX 200 in the last 12 months, but each individual business has its own story.

What is influencing the Brickworks share price?

Company announcements and profit changes can have an influence on shorter-term and longer-term movements of the valuation of a business.

Brickworks runs a slightly different financial calendar to most businesses on the ASX. So it won’t be telling investors its FY21 result this month. But earlier this month Brickworks did provide an earnings update.

It announced that COVID-19 was impacting operations in both NSW and Queensland. Brickworks said that in June and early July its brick sales in NSW were approximately in line with local production capacity. However, dispatches were rapidly reduced by 80% during the pause in construction activity across Sydney in late July.

The partial re-commencement of construction activity in August saw brick sales improve, but were still at 50% of pre-lockdown levels. This caused storage yards to reach full capacity, leading the business to temporarily reduce production at two of its five brick kilns. Significant production volume is/was being sent south to meet the strong demand in Victoria.

Capital projects are also being impacted, such as its new masonry plant at Oakdale East where the commissioning process is being “severely disrupted”, with several critical technicians being stranded overseas because of a lack of inbound flights.

Development activity within the property trust is also being affected, with various Oakdale Estates being impacted by closures and reduced workforce numbers.

The Brickworks share price has fallen 6% since this announcement.

Where’s the positive news?

It’s not all COVID-19 negativity for Brickworks. These impacts in NSW were right at the end of FY21, so the impact in the previous financial year was immaterial. FY21 earnings before interest and tax (EBIT) is expected to be around 35% higher than FY20.

Brickworks also said that North American trading in July was slightly softer than forecast, so FY21 EBIT will be slightly below the prior year. But Brickworks has recently bolstered this region with the acquisition of the largest independent brick distributor in the USA, with the purchase of certain assets from Southfield Corporation, including Illinois Brick Company (IBC), for US$51.1 million.

IBC has 17 showrooms and distribution outlets across Illinois and Indiana. It did this because it will add scale and fills a gap within Glen Gery’s existing distribution network. It also underpins significant sales volume. Management believe there are significant growth opportunities and cost synergies available to Brickworks. It’s expecting to add 2% to earnings per share (EPS) in year one, excluding cost synergies and growth initiatives.

The Brickworks share price is up 13% since its record property earnings announcement

Brickworks shares have risen 12.8% since announcing on 9 June 2021 that it was expecting to report record property earnings in FY21.

A significant revaluation profit within its joint venture industrial property trust is expected to be around $100 million, leading to property underlying EBIT being between $240 million to $260 million.

There have been a number of significant industrial property transactions in western Sydney that have helped the valuations with accelerating industry trends towards online shopping and the increasing importance of well-located distribution hubs and sophisticated supply chain solutions.

Practical completion of the Amazon facility at Oakdale West is expected to occur in the first half of FY22. The even larger Coles Group Ltd (ASX: COL) distribution warehouse is under construction and completion is expected in early FY23.

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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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