The Brickworks Limited (ASX: BKW) share price looks like a buy in my opinion.
There are a few elements to the Brickworks business. Certainly, its diversification is one of the things I like about the company. Brickworks is one of the largest building products manufacturers and suppliers in Australia, with operations in bricks, masonry, roofing, cement, precast, and so on.
The Brickworks share price has dropped close to 20% over the last two months. That alone makes it more attractive to me. But there’s more to like about the business than simply being cheaper.
These are some of the reasons why I like the business.
Brickworks is a leading brickmaker in the northeast of the US after a few acquisitions, including Glen-Gery.
The US is a large market for Brickworks to tap into. Glen-Gery has 27 company-owned distribution locations.
The company’s management is working on making the business as efficient as possible by closing some locations and upgrading others. For example, it has completed “extensive” upgrades at its Hanley plant in Pennsylvania, which is focused on premium architectural products. The company has upgraded its clay preparation area, the extruder, and the setting line to deliver “much improved manufacturing efficiency, product quality and a broader product range”.
While inflation and supply chain issues are hurting shorter-term profitability, the US division also reported a record order book, which was expected to lead to increased sales activity from April.
As well, Brickworks owns a sizeable chunk (26.1%) of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
I think that the Soul Pattinson investment is very useful. It can provide diversification and consistency for Brickworks while its building products earnings can be cyclical. The Soul Pattinson shares form a sizeable part of the asset backing for the Brickworks share price.
Soul Pattinson owns a diversified portfolio across a number of sectors including resources, telecommunications, agriculture, financial services, swimming schools, and so on.
Brickworks is receiving a growing dividend from the investment house, which helps fund its own dividend.
This could be my favourite factor for liking the business at the current Brickworks share price.
Brickworks owns a 50% share of an industrial property trust in a joint venture with Goodman Group (ASX: GMG).
The ASX share said that industrial real estate valuations continue to increase in response to consumer trends such as online shopping. This spurs demand for large, strategically-located warehouses to run their operations.
The property trust is benefiting from completing a number of projections. In the FY22 first half result, the trust made a development profit of $115 million, primarily driven by completing the Amazon facility at Oakdale West.
As developments are completed, rental income continues to grow. Net trust income for the half was $17 million, up 7% year on year. This is helping fund the growing Brickworks dividend as well.