Brickworks Limited (ASX: BKW) shares could be great value at current levels.
That's the view of analysts at Bell Potter, which believe investors should be picking up the building products company's shares while they can.
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What is the broker saying about Brickworks shares?
According to a note this morning, the broker thinks that the company's important stake in Washington H Soul Pattinson & Company Ltd (ASX: SOL) is the reason to invest. It highlights:
The biggest driver of value in our BKW valuation is the company's 26.1% shareholding in SOL, which we estimate represents ~50% of the current EV of the business. However, while SOL may be the primary driver of value, the headstock of BKW can at times trade independent of SOL (~70% correlation) and associates such as NHC (~29% correlation) given its equal or greater relationship to domestic building exposures such as JHX (84%) and CSR (70%).
Bell Potter believes the stake is being undervalued by the market at present. It adds:
We believe that an attractive look-through opportunity has recently presented in BKW, with our mark to market valuation of SOL indicating that the stock is currently trading at a 3.6% discount to pre-tax NTA. This compares to an average pre-tax premium to NTA of 3.9% (post the MLT merger) and represents the widest valuation gap since Jul'22.
Upgraded
In light of the above, Bell Potter has upgraded Brickworks' shares to a buy rating (from hold) with an improved price target of $29.50.
Based on its current share price of $25.76, this implies potential upside of almost 15% for investors over the next 12 months.
In addition, the broker is forecasting fully franked dividends of 67 cents per share in FY 2024 and then 69 cents per share in FY 2025. This equates to 2.6% and 2.7% dividend yields, respectively, for investors.
This means a total potential return of over 17% for investors between now and this time next year, which would turn a $10,000 investment into approximately $11,700 if it proves to be accurate.
Bell Potter then concludes:
There are no material changes to forecasts, however we think the implied SOL discount and rent growth outlook on offer is attractive and upgrade our rating to Buy. Potential catalysts could include news flow regarding development of other surplus properties (e.g. USA). We see Building Products and near-term working capital reduction targets as the key risk, with our FY24e forecasts -6% below consensus.
