4 reasons it could be time to look at the Brickworks share price

Brickworks shares could be an interesting investment to consider.

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Key points

  • The Brickworks share price has been dropping recently
  • There are several compelling reasons why the company might be an interesting opportunity
  • Its industrial property trust could keep growing value

The Brickworks Limited (ASX: BKW) share price has been falling since the end of March. Given the decline, there could be some good reasons to consider the business.

Brickworks may be best known for being an Australian building products company but there are other divisions within the business to consider Brickworks for the long term.

Here are four reasons why the Brickworks could be attractive, beyond simply being cheaper:

Industrial property trust

One of the company’s divisions that is growing rapidly for Brickworks scaling is its industrial property trust.

This is a 50:50 partnership between Brickworks and Goodman Group (ASX: GMG). The trust builds industrial properties on excess land that Brickworks no longer needs. The land is sold into the trust.

Brickworks and Goodman both talk of elevated demand for logistics and e-commerce properties which are helping rental growth and valuations.

Brickworks’ share of the trust went up 38% in the first half of FY22 to $1.26 billion, thanks to valuation gains and some projects being completed.

But the trust has a long pipeline of land. It said there is a total of 221,100 square metres of lease pre-commitments already secured across the property trust. In addition, a further 176,400 square metres is available for development at existing estates.

Based on current demand, Brickworks expects its estates to be fully built out within three years. Brickworks said that will result in additional gross rent of around $60 million and leased asset value of $1.5 billion, taking total leased assets to around $4.5 billion.

Operational property trust

Another initiative by management to generate value for shareholders was announced in the HY22 result, which could be a boost for the Brickworks share price.

We have just looked at what Brickworks does with excess land – it’s sold into the industrial property trust. But there’s an extra plan – sell operational manufacturing properties into a different trust.

This will allow Brickworks to ‘realise’ the value of the land in its Australian building products segment.

Brickworks said that 15 properties have been identified for inclusion in the first stage, with a total gross value of around $415 million.

Brickworks said it expects the sale and leaseback of these manufacturing sites will deliver gross cash proceeds of around $200 million and an estimated pre-tax profit of between $260 million to $280 million after the valuation uplift.

After the initial stage, additional properties with a similar value are earmarked for inclusion in the operational property trust in the coming years.

In the long term, these properties can then be turned into industrial property locations.

Investments segment

Brickworks owns a significant amount of Washington H. Soul Pattinson and Co Ltd (ASX: SOL) shares.

Soul Pattinson is an investment house that is invested in a variety of different sectors including telecommunications, resources, agriculture, building products, swimming schools, financial services, and more.

Brickworks says that the ASX share has provided growing dividends and rising earnings for the long term.

US building products

Brickworks isn’t just an Australian business. It also has a growing presence in the US after making a few acquisitions such as Glen Gary, which could help the Brickworks share price for the long term.

The ASX share is looking to make its US operations more efficient and profitable.

The US is a much larger market than Australia, giving the company a long growth runway to work with.

Brickworks also said that there are “property opportunities” emerging in North America, with “strong market interest” for some operational and surplus land assets. It’s considering outright sales, sale and leaseback, and joint venture property development opportunities.

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 has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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