The S&P/ASX 200 Index (ASX: XJO) share Brickworks Ltd (ASX: BKW) has painfully declined in the last few weeks. As the chart below shows, it's close to a two-year low it briefly experienced in April 2023.
After seeing the recent FY25 half-year result, I'm going to outline why the market has punished the business and why it could offer a lot of value at this lower level.
So, let's start with the bad news and then look at the opportunity.
Difficulties for the building products division
Brickworks may be best known for its building product businesses. It has significant brick-making operations in Australia and the US. In Australia, it also manufactures a number of other building products, including roofing, stone and masonry, timber battens, cement, and specialised building systems.
In the FY25 first-half result, Brickworks' overall underlying operating profit (EBITDA) rose 472% to $148 million and underlying net profit after tax (NPAT) grew 308% to $76 million. However, that was largely due to a weak FY24 half-year result rather than anything incredible happening in the HY25 half-year result.
The Australian building products operating profit (EBITDA) declined 4% to $50 million, and the North American building products division suffered a 3% fall in EBITDA to a loss of $3 million.
Both building product businesses are suffering from weak operating conditions in their core markets amid lower demand and high interest rates.
However, the company has been working hard on cost control and ongoing productivity improvements to try to maintain profitability.
The short-term outlook is for both businesses to see soft demand. However, conditions are "forecast to improve from 2026 and further strengthen from 2027". Management believes the building product divisions are "well placed to deliver strong returns when market conditions improve" after restructuring and plant investments.
Why Brickworks shares looks so cheap to me
There are two key reasons why I think the ASX 200 stock looks so appealing. When you look at the sum-of-the-parts valuation of Brickworks, it appears to be trading at a big discount.
Brickworks owns a significant property portfolio. It owns half of two property trusts that own industrial properties. Tenants include Amazon, Coles Group Ltd (ASX: COL), and Woolworths Group Ltd (ASX: WOW).
Strong growth in net rental income is forecast from the property trusts over the coming years, thanks to new developments and lease renewals from existing assets. The tenant demand is benefiting from structural trends towards e-commerce and the digital economy.
Pleasingly, the property segment is still experiencing high levels of lease enquiries for large-sized facilities. It's also continuing to evaluate the development potential and/or sale of various development sites.
Brickworks also owns 25.65% of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), a high-quality investment house that has been operating for over 120 years.
The market value of its Soul Patts shares was $3.23 billion at 31 January 2025, and its property trust's net tangible assets (NTA) was $1.99 billion at 31 January 2025. It also has three parcels of land held within its building product divisions that have been identified for potential development. As they are, those pieces of land are reportedly worth $219 million.
That compares to the current Brickworks market capitalisation of $3.65 billion. In other words, the value of its non-building product assets is significantly higher than what the market is valuing Brickworks shares at.
