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.
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.
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%.