Brickworks Ltd (ASX: BKW) shares have been having a tough time of late.
So much so, prior to today's session, the building products company's shares were down 25% over the past 12 months.
This means that its shares are trading far closer to their 52-week low than their 52-week high now.
Is this a buying opportunity for investors? Let's find out.
Should you buy Brickworks shares?
One leading broker that is likely to see recent weakness as a buying opportunity is Bell Potter.
Its analysts upgraded Brickworks shares to a buy rating a few months ago when they were trading at $26.29. So, with its share price now at $23.39, investors are getting an even better deal than they would have got had they bought them back then.
According to the note, the broker believes that Bell Potter is well-placed to benefit from interest rate cuts. It recently said:
As Australia approaches a potential interest rate pivot point (Bell Potter's base case for our first cut is Feb'25), we see it as an opportune time to consider BKW's potential pathway for valuation uplift through the next cycle.
Bell Potter also highlights that potential cap rate contractions could bode well for the company. It adds:
FY24 showed that BKW's property value continues to be supported by market rent growth, with the modestly positive HOH property revaluation of +$18m in 2H24 (-$233m at 1H24) a pleasant surprise to us. With today's cap rate of 5.2% (+17bps HOH) arguably looking "about right" (in context of the 3Q24 Outer Western Sydney prime average of 5.4%), we estimate a -0.25bps fall in the cap rate on BKW's existing leased property portfolio could add +$0.70ps in net asset value, whilst a -100bps fall could see an increase of +$3.70ps.
What else?
In addition, the broker points out that there is one thing that it thinks investors are overlooking when it comes to Brickworks shares. That is the company's rent capture and development. It explains:
We think an underappreciated part of an investment in BKW remains its ability unlock earnings/value from rent reversion (BKW is c.50% short-WALE and -28% under-rented) and property development (320k sqm new prime GLA over next 5-years). We think BKW could reasonably add an average +$0.50ps in NTA per annum for each of the next five years, holding today's cap rate constant.
Big return potential
The note reveals that Bell Potter has a buy rating and $32.00 price target on Brickworks shares.
Based on its current share price, this implies potential upside of approximately 37% for investors over the next 12 months.
It also expects a dividend yield of approximately 3% in FY 2025, boosting the total potential return to around 40%.
