Shares in Brickworks Limited (ASX: BKW) haven't found range today and are inching lower at $23.30. It looked like a positive start to the day for investors, but shares fell south by mid-morning.
It's been a wavy ride these past 3 months for Brickworks investors as well. Shares have bounced from a top of $25.93 in late September, and the trend has spilled over into this week's trading.
Let's take a closer look.
What's got the Brickworks share price battling this week?
The Brickworks share price has been underperforming the benchmark S&P/ASX 200 Index (ASX: XJO) these past few days.
Investors responded poorly to the company's AGM presentation and trading update on Tuesday. In it, the company outlined both investment highlights and challenges to its shareholders.
The company says it has made a steady start to FY22, with first quarter revenue and EBITDA slightly ahead of the prior corresponding period.
However, sales in Sydney and Melbourne, Brickworks' two largest markets, were impacted by construction restrictions due to the pandemic.
Sales across concrete products, including Austral Masonry, were down on the prior period, with this business "more exposed to the current weakness in the multi-residential segment".
Meanwhile, construction of its brick facility at Horsley Park in Sydney is also "well underway" and is expected to be completed in around a year's time.
Whilst Brickworks recorded a strong increase in sales, margins in its North America business remain compressed. It says it is experiencing cost pressures across the supply chain, including direct production inputs and transportation.
Labour shortages are resulting in higher wage rates to attract and retain staff, and activity in the higher margin commercial segment is expected to remain weak until Spring.
The company acknowledged that "there remains work to do to ensure this business reaches its full potential", but that it is confident that North American operations will deliver improved earnings in the years ahead.
What's the outlook?
Regarding the company's outlook, management noted that within Australia, sales momentum is improving. It hopes the activity can remain elevated for the rest of the financial year.
In North America, it reckons FY22 earnings will benefit from capital management and rationalisation initiatives, despite ongoing margin pressures.
The merger of Soul Pattinson Ltd (ASX: SOL) and Milton Corporation Ltd (ASX: MLT) triggered a one-off non-cash profit to Brickworks, due to Brickworks' share of the larger WHSP.
This profit will be in the range of $375-425 million (after-tax) and will be recorded in the first half of FY22.
Speaking on the company's outlook, Brickworks' Managing Director Lindsay Partridge said:
The pandemic has accelerated industry trends towards online shopping, and this is continuing to drive industrial property values higher. With our annual revaluation process to be completed prior to the end of the first half, we anticipate these trends will result in further revaluation gains across our portfolio.
Partridge continued:
In both countries [North America and Australia], there remains an ever-present threat of further unforeseen disruptions from the pandemic and related supply chain issues. Another strong half is expected for Property, and WHSP is expected to deliver a stable and growing stream of earnings and dividends over the long term.
Brickworks' shares are down 5% on the month but have clawed 15% higher in the past year. This has come after rallying 21% since January 1, but its share price is now well off its 5-week high of $26.32.
