Down 17% in 3 months, is it time to buy this ASX 200 dividend superstar?

Brickworks shares are trading at an attractive valuation, according to experts.

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The Brickworks Limited (ASX: BKW) share price has fallen around 17% in the last three months after reaching an all-time high of $31 on 8 March this year. 

This decline brings its share price back to $26, the same level it was a year ago, as we can see in the chart below. In contrast, the S&P/ASX 200 Index (ASX: XJO) has surged 7.2% during the same period.

Income-focused investors might be wondering if this is a good time to buy into this consistent dividend payer.

Undervalued relative to its asset value 

Bell Potter certainly thinks so, as my colleague James covers in this recent article.

According to Bell Potter, the stock could be undervalued as it offers a discount on its net tangible asset (NTA) value, which includes a 26.1% shareholding in Washington H Soul Pattinson & Company Ltd (ASX: SOL). Bell Potter highlighted:

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 July '22.

Shortage in industrial properties continues

Another key component of Brickworks' NTA is its prime industrial land holdings across Australia and the United States, most notably in Western Sydney. The area is experiencing soaring demand for industrial properties as consumer demand for online shopping remains high.

In a market update in May, the company explained:

These structural trends, along with land supply issues, have driven up rent for prime industrial property in Wetsern Sydney by 55% in the past two years. We estimate that the current passing rent within the Industrial JV Trust [of Brickworks] of $147/m2 is now 35% below average market rent of $225/m2.

Valuation comment 

Following its recent drop, the Brickworks share price is trading at a price-to-book ratio (PBR) of 1.14x. 

Over the past 10 years, shares in Brickworks have rarely traded below the company's book value, except during the COVID-19 pandemic when the PBR dropped to 0.84x.

The book value, different from NTA, is based on the value of its asset holdings as of 31 December 2023, without accounting for potential upside from future land development.

Foolish takeaway

The Brickworks share price is trading at an attractive valuation relative to its asset value, which is supported by industrial land shortages in prime locations, in my opinion.  

This could present a buying opportunity for some dividend investors.

Motley Fool contributor Kate Lee has positions in Brickworks. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks. The Motley Fool Australia has positions in and has recommended Brickworks. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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