The Brickworks (ASX:BKW) share price has gained 7% in September. What’s next?

Brickworks has risen by 7% in September. What could happen next?

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In September 2021 so far, the Brickworks Limited (ASX: BKW) share price has gone up by 7%. But what could happen next for the construction materials business?

First let’s look at the last month or so of interesting updates.

Brickworks’ latest operational update

It has been a challenging operating environment for Brickworks in Australia over the last couple of months.

On 9 August 2021, Brickworks announced that it was curtailing operations at a number of New South Wales and Queensland facilities.

The company noted that brick dispatches abruptly reduced by 80% during the pause in construction activity across Sydney in late July.

Management said the partial re-commencement of construction activity in August has resulted in some improvement, however brick sales are/were at only 50% of pre-lockdown levels, resulting in multiple storage yards reaching full capacity. Therefore, Brickworks decided to curtail production at two of its five brick kilns across the state, representing 30% of total production capacity.

The building materials business also said that the impact is similar across its other building products businesses. Operations at its precast facility in Wetherill Park was significantly reduced and it has removed one production shift at its roof tile plant in Brisbane that supplies the Sydney market.

NSW is its largest and most profitable market, which is now having a “material” impact on its building products Australia earnings.

Its major capital projects were also being affected by restrictions, such as the new masonry plant at Oakdale East.

The Brickworks share price fell by 6% between the day of that announcement and 30 August 2021.

An acquisition

A week before that shutdown announcement, the company announced it was spending US$51.1 million to buy certain assets from Southfield Corporation, including the Illinois Brick Company (IBC). IBC is the largest independently owned and operated brick distributor in the US, with 17 showrooms and distribution outlooks across Illinois and Indiana.

Management said the acquisition supports the company’s growth strategy in North America. It will build scale and fills the gap within Glen-Gery’s existing direct distribution network. IBC will also underpin significant sales volume.

A positive update from Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Brickworks owns around 40% of Soul Patts, which recently gave an update about its expected profit. Due to the fact that Soul Patts is an investment house, its investment holdings’ performance has a major impact on its regular net profit each year. The performance of Soul Patts can have a very sizeable impact on the Brickworks share price.

Aside from referencing the expected record earnings from its property division, driven by the continued increase in the value in the trust, there were two other elements.

In New Hope Corporation Limited’s (ASX: NHC) latest quarterly report, it expects FY21 earnings before interest, tax, depreciation and amortisation (EBITDA) to be $372 million. This was due to thermal coal prices currently being at a 10-year high.

Soul Patts also said that its 100%-owned mining business, Round Oak, is expecting to report a regular net profit to be in the range of $64 million to $68 million. This is a “significant” improvement on FY20’s regular net loss of $43 million as commodity prices rose and a number of mines went from development to production.

What next for the Brickworks share price?

In operational terms, Brickworks is looking forward to restrictions lifting in its major Australian markets. The ongoing development of the large industrial properties in its property trust for Amazon and Coles Group Ltd (ASX: COL) is expected to significantly increase the value and rental profit of the trust.

Investors can now look towards the release of the 2021 financial year result. This is due to be released on 23 September 2021.

One of the brokers most optimistic about Brickworks is Citi, which rates it as a buy with a price target of $27.20.

Using Citi’s profit expectations for the upcoming result, the Brickworks share price is valued at 15x FY21’s estimated earnings.

Should you invest $1,000 in Brickworks right now?

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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Brickworks. 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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