The S&P/ASX 200 Index (ASX: XJO) stock Brickworks Limited (ASX: BKW) looks like a great opportunity in my opinion.
Not only is it a wonderful business with excellent assets, but it's trading at a large discount to those assets.
When you can buy a good company at an appealing price-to-book ratio, it can lead to pleasing investment returns over time if the business keeps growing its underlying value. On top of that, I believe Brickworks is a solid ASX 200 dividend stock as well.
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Brickworks' excellent assets
The company has three areas – investments, property and building products.
In the investments segment, the key asset is 26.1% of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Soul Patts is a large investment house that's invested in sectors like telecommunications, resources, financial services, swimming schools and agriculture. Brickworks also owns 14.8% of bricklaying robot company FBR Ltd (ASX: FBR).
Brickworks owns various property assets, including land and manufacturing property, in its own name. It also owns half of a manufacturing property trust that owns some of the buildings used by Brickworks' building products businesses and 50% of an industrial property trust.
The ASX 200 stock occasionally sells excess land into the industrial property trust, where partner Goodman Group (ASX: GMG) builds large, advanced warehouses on the land. This improves the value of the land and unlocks excellent rental income for Brickworks and Goodman. The property portfolio within the joint venture trust is steadily growing.
The industrial property trust is benefiting from tailwinds, including online shopping's increasing demand for 'list-mile' logistics and warehousing. There's also growing demand for sophisticated and higher-value facilities (including robotics and multi-storey).
Brickworks has building product operations in Australia and the US. In Australia, it's the biggest brickmaker and is also involved with roofing, masonry and stone, specialised building systems, cement, and timber battens. In the US, it's the largest brickmaker in the northeast of the country. Brickworks has assets related to those operations in both countries.
Large discount with the ASX 200 stock
At 31 January, the business reported it had $1.95 billion of net tangible assets (NTA) relating to the property trusts, $608 million of NTA relating to building products, $615 million of net debt and $384 million of 100%-owned development land, with an 'as is' market value.
Currently, 26.1% of Soul Patts' market capitalisation is $3.1 billion.
Therefore, the latest known inferred value of those assets, excluding deferred tax liabilities, is around $5.4 billion, so Brickworks shares are trading at roughly a 23% discount to this at its current market capitalisation.
With the high-quality nature of the underlying assets, particularly the property and investments, I think the size of the discount is unwarranted and presents compelling value. Brickworks can grow its value further as the development land is utilised for more industrial properties, it improves its building product operations, and it benefits from the compounding of Soul Patts' investment portfolio.
The ASX 200 stock can work as a buy-and-hold investment with its impressive dividend, which hasn't been cut for almost 50 years. Brickworks currently has a grossed-up dividend yield of 3.5%.
