3 reasons why the Brickworks (ASX:BKW) share price could be a buy

Brickworks shares could be worth considering for a few different reasons…

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A young male builder with his arms crossed leans against a brick wall built using Brickworks bricks and smiles at the camera

Image source: Getty Images

The Brickworks Limited (ASX: BKW) share price may be a good one to consider. There are some compelling reasons to like the business.

What is Brickworks?

Brickworks is an S&P/ASX 200 Index (ASX: XJO) company. It has a few different segments to it.

The part that captures most of the attention is the building products division in Australia. It is the largest brick manufacturer in Australia. But it’s also known for other products as well. There are various businesses including: Austral Bricks, Austral Masonry, Austral Precast, Bristle Roofing, Southern Cross Cement, Bowral Bricks, Daniel Robertson, Nubrik, Terracade, Pronto Panel, GB Masonry, Urban Stone, and Capital Battens.

After making some acquisitions, it also has a large presence in the northeast of the US. The businesses it operates there include Glen Gery, Sioux City Brick, Lawrenceville Brick, and Cushwa Brick.

It also has other assets, but those will be covered as one of the potentially compelling points below:

Reliable and growing assets

There are two asset groups that underpin the Brickworks share price.

Brickworks owns just over a quarter of the recently enlarged Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). The investment house provides Brickworks with increasing dividends and diversification.

Soul Patts is invested in a number of sectors including telecommunications, building products (being Brickworks), mining and energy, financials, health, and property.

The investment conglomerate is looking at a number of areas to invest in including health and ageing, the energy transition, agriculture, financial services, and education.

Brickworks also owns half of a property trust along with Goodman Group (ASX: GMG). After including borrowings, Brickworks’ half of the net asset value of the trust was $911 million at 31 July 2021.

Brickworks sells surplus land into the trust at market value, while Goodman funds the infrastructure works, to create serviced land ready for development. Once a lease pre-commitment is secured, the serviced land can then be used as security, with debt funding to cover the cost of constructing the facilities. The completion of pre-committed developments over the next two years will result in an increase of around 60% in rent and leased asset value from the current level.

The new developments are increasingly sophisticated, with things like robotics, automation, and multi-storey warehousing.

Good value

On 7 October 2021, Brickworks said its current inferred asset backing was around $32 per share. That included the Soul Patts shareholding value of $3.41 billion, $911 million for the property trust, $1.03 billion of building product assets, and $519 million of net debt.

The company also noted the building products asset value includes land, both operational and surplus, with the market value “significantly higher” than the book value.

The share prices of Brickworks and Soul Patts are changing all the time. However, the current Brickworks share price is at a discount of around 25% from that value that was stated a week ago.

Long-term dividend record

Brickworks says it’s proud of its long history of dividend growth and the stability this provides to its shareholders.

It has maintained or increased its normal dividend every year for the last 45 years. That means no cuts for over four decades.

In FY21, it grew its total dividend by 2 cents per share to 61 cents per share.

At the current Brickworks share price, the trailing grossed-up dividend yield is 3.65%.

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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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