Here’s why the Brickworks (ASX:BKW) share price has loads of growth potential: expert

Brickworks shares have plenty of growth potential according to Ord Minnett.

| More on:
A white and black clock face is shown with three hands saying Time to Buy reflecting Citi's view that it's time to buy ASX 200 banks

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The Brickworks share price has good upside potential, according to one expert
  • Ord Minnett rates Brickworks as a buy, with a price target of $26.20
  • The industrial property trust is driving significant value for the ASX share

The Brickworks Limited (ASX: BKW) share price has lots of potential to grow according to the broker Ord Minnett.

Brickworks is one of the older businesses on the ASX. It has operated as one of Australia’s biggest brick manufacturers for decades, and now it is a diverse business.

There are three segments to the business. It has its building products division, ‘investments’ and an industrial property trust.

Building products

Brickworks has operations in both Australia and the US.

In Australia, it is the leading brickmaker with a number of brands such as Austral Bricks. It also makes several other building products including masonry, paving, roofing, precast and so on.

The ASX share did a few acquisitions in the US. It is now the largest brickmaker in the north east of the US. Brickworks has been working on making that segment more efficient to increase profit margins.

Investments

Brickworks has had a cross-holding arrangement with the investment conglomerate Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) for decades. It helped stop corporate raiders.

For decades, Soul Pattinson has helped provide stability and reliable earnings to help offset the cyclicality of the building products division. The growing Soul Pattinson share price has helped the underlying value of the Brickworks share price.

The investment conglomerate has a diverse portfolio with many different businesses including TPG Telecom Ltd (ASX: TPG), Brickworks, New Hope Corporation Limited (ASX: NHC), Pengana Capital Group Ltd (ASX: PCG), agriculture and swimming schools.

Industrial property trust

Ord Minnett recognises that the joint venture with Goodman Group (ASX: GMG) is adding a lot of value for the Brickworks share price.

This trust is where Brickworks sells excess land into the trust for the joint venture to then build high-quality industrial properties on that land. There are some massive buildings going up for both Amazon and Coles Group Ltd (ASX: COL). Another sizeable warehouse is also being built for Woolworths Group Ltd (ASX: WOW).

The Amazon building was due for practical completion at the end of December. This, together with other projects at Oakdale South, will result in significant development profits.

Brickworks says the trust is seeing strong demand and sustained growth in the value of its property trust. COVID-19 has accelerated industry trends towards online shopping and increased the importance of well-located distribution hubs and sophisticated supply chain solutions.

Thanks to the demand, it’s expecting to report record property earnings in the first half of FY22 with property earnings before interest and tax (EBIT) expected to be between $290 million to $310 million.

Brickworks recently released 75 hectares of land at Oakdale East which will extend the development pipeline in the trust.

Brickworks share price target

Ord Minnett has a price target of $26.20 on the business, suggesting a potential upside of more than 20%.

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, COLESGROUP DEF SET, 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.

More on Real Estate Shares

A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen showing the Nickel Industries share price has dropped by 36% since early March
Real Estate Shares

Pexa Group share price slides 4% amid ACCC probe

The online property company appears to be on the ACCC's radar for a second time.

Read more »

An industrial warehouse manager sits at a desk in a warehouse looking at his computer while the Centuria Industrial share price rises
Real Estate Shares

‘Attractive, stable’: 2 ASX shares other companies rely on

With interest rates rising again, consumers are about to close their wallets. So perhaps this pair of companies might be…

Read more »

A young family with two kids smiling as they stand on the balcony of an apartment they are inspecting after seeing it advertised on REA
Real Estate Shares

Can the REA share price turn over a new leaf in 2022?

REA recently provided investors with its new strategy to turn its fortunes around.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the ANZ share price declines today
Real Estate Shares

Why has the Goodman share price tanked 14% in a month?

Goodman shares were sold off in May...

Read more »

forklift holding boxes next to upward trending arrow signifying share price lift
Dividend Investing

‘We see value’ in this dividend ASX share: expert

Fund manager likes this stock for a business that provides exactly what the modern world needs.

Read more »

Female ASX travel shares investor with surprised expression drinks a cup of tea while reading the newspaper at her desk
Real Estate Shares

Why is the Unibail-Rodamco-Westfield share price tumbling 10% today?

What's dragging on the shopping centre operator's share price today?

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Real Estate Shares

Goodman share price charges higher on Q3 update and guidance upgrade

Goodman shares are storming higher on Monday morning. Here's why...

Read more »

A man sits at a desk holding a small replica house in his hand, upset at the sale of his property.
Real Estate Shares

Feel the squeeze: 3 ASX property shares with a whole lot of debt

When it comes to debt, it's the more the not-so merrier...

Read more »