The S&P/ASX 200 Index (ASX: XJO) stock Brickworks Limited (ASX: BKW) has fallen 18% since early March this year. I recently bought shares and think it still looks very good value.
Brickworks may be best known as a building products business, but there's plenty more to like about it than just its bricks, paving, masonry, specialised building systems, cement and other construction material offerings.
What I like most about the company is its large and diversified asset base. I also like the long-term wealth-creation potential of its property and investment divisions, and at around $25, the current share price makes it seem like a bargain.
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Property division
For starters, Brickwork owns stakes in different types of property. The business has excess land that it owns outright, which it plans to sell into an industrial property trust that it owns half of alongside partner Goodman Group (ASX: GMG).
The property trust is building large, advanced warehouses on land that Brickworks used to own solely. Once completed, the new warehouse will increase the value of the underlying land and unlock another stream of rental profit for the trust.
Industrial property is in strong demand thanks to growing e-commerce, the onshoring of supply chains, and the limited space in major cities for large warehouses.
According to Brickworks, rent for prime industrial property in western Sydney has risen by 55% in the past two years. The current passing rent within the industrial joint venture trust is 35% below the average market rent. The company expects to progressively achieve this upon lease renewals and reviews.
And on 31 January 2024, Brickworks' share of the property trust's net tangible assets (NTA) was worth $1.95 billion. This figure will be updated in the ASX 200 stock's upcoming FY24 result.
Investment division
The main investment in this segment is its 26% stake in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Brickworks has owned a stake in the investment business for decades, which has helped provide stability and long-term growth.
Soul Patts owns a diversified portfolio across industries, including telecommunications, resources, property, credit, agriculture, and swimming schools. This business has been successful at growing its underlying portfolio value and dividend for shareholders. Brickworks has been a key beneficiary.
This Soul Patts stake is one of the main reasons why I invested in Brickworks shares this week. I believe buying Brickworks shares means we can gain access to Soul Patts shares for a discount.
When I invested in Brickworks shares earlier this week, the Soul Patts stake was worth approximately $3.2 billion.
Large discount on offer
I'm not sure how the building products side of the business is going to perform for the foreseeable future, but I think the ASX 200 stock's exposure to the weakness in the construction world has led to the sell-off of the Brickworks share price.
When I invested, Brickworks' share of the property trust NTA and the Soul Patts stake were worth close to $5.1 billion. However, Brickworks had a market capitalisation of less than $3.9 billion, so there was a discount of well over 20%, ignoring the other parts of the business.
With interest rate cuts in Australia probably less than a year away now (in my view), I thought, and still think, this is a bargain ASX 200 stock.
