Is the Brickworks (ASX:BKW) share price a smart buy in this volatility?

Brickworks shares are falling. But is it a smart opportunity?

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Key points

  • The Brickworks share price has dropped 10% in just over a week
  • Some experts currently rate the business as a buy
  • Brickworks has defensive assets and the property trust development pipeline remains strong

The Brickworks Limited (ASX: BKW) share price has fallen by 10% since 17 January 2022. That’s a bit worse than the S&P/ASX 200 Index (ASX: XJO), which has fallen 6.1% over the same time period.

Despite that, the diversified company has achieved longer-term positive returns – over the past year, it has still registered a 19% gain.

But with the company’s decline, would it be a smart stock to consider right now?

Current analyst ratings on the Brickworks share price

Both Citi and Ord Minnett rate the business as a buy.

Ord Minnett has a price target of $26.20 whilst the Citi price target is $30. Both of these brokers are recognising the strength of the Brickworks property business, which is helping things.

A month ago, Brickworks said that it was expecting to report record property earnings in the first half of FY22, with property earnings before interest and tax (EBIT), in the absence of any further transactions, in the range of $290 million to $310 million. That compares to $253 million in FY21.

UBS, which currently rates Brickworks as ‘neutral’, has a price target of $26.30 on the company. UBS broker recognises what is helping grow the underlying value of Brickworks –  the property trust and its holding of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares.

Both of these assets are defensively positioned with growing cashflow to Brickworks through rising dividends and increasing rental profit.

What is growing the property earnings?

Brickworks is in a joint venture with Goodman Group (ASX: GMG) with the property trust. It has seen strong demand and sustained growth in the value of the trust over a number of years. This may also have helped the Brickworks share price.

The COVID-19 pandemic has helped accelerate industry trends towards online shopping and increase the importance of well-located distribution hubs and sophisticated supply chain solutions.

The property trust continues development at a fast pace. At its industrial site at Oakdale West, the construction of the state-of-the-art Amazon facility was scheduled for completion at the end of December. The completion of this facility, together with others at Oakdale South, will result in “significant development profits”.

But the trust has more long-term plans for growth. Brickworks recently announced it was releasing 75 hectares of land at Oakdale East, to be sold into the property trust. This will result in a “significant” one-off land sale profit and extending the development pipeline in order to meet the unprecedented demand for industrial development.

Soul Pattinson’s portfolio is designed to be defensive

The investment conglomerate has a portfolio that is set up to be able to withstand periods of economic disruption and volatility.

For example, the investment company says it provides capital protection (which gives Brickworks downside protection), with a “portfolio of assets which generate reliable cash through market cycles which serves to protect downside in market corrections”.

The Soul Pattinson portfolio is diversified across a range of uncorrelated investments across listed shares, private equity, venture capital, property, structured credit and cash.

Some of the biggest holdings in the Soul Pattinson portfolio are TPG Telecom Ltd (ASX: TPG), New Hope Corporation Limited (ASX: NHC) and agricultural assets.

Brickworks dividend

Not only is the Brickworks share price rated as a buy by some analysts, but it also has a dividend that hasn’t been cut for decades.

At the current value, Brickworks shares offer a trailing grossed-up dividend yield of almost 4%.

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