Brickworks Ltd (ASX: BKW) shares have long been a favourite among retail investors.
Brickworks operates across four divisions: Building Products Australia, Building Products North America, Property, and Investments.
It is one of Australia's largest building material manufacturers, with products including clay bricks and pavers, roof tiles, and stone pavers. These are sold under well-known brands, including Austral Bricks.
Brickworks also co-owns two real estate joint venture (JV) trusts with Goodman Group (ASX: GMG).
Finally, the company has a cross-shareholding arrangement with investment conglomerate Washington H. Soul Pattinson (ASX: SOL).
Brickworks shares made headlines last month after the company revealed it would be merging with Soul Patts. As reported back then by The Motley Fool's James Mickleboro, the deal will see Brickworks and Soul Patts combine under a newly capitalised ASX-listed entity. This will be known for now as TopCo, creating a diversified powerhouse with greater scale, a stronger balance sheet, and a simplified corporate structure.
Soul Patts' CEO, Todd Barlow, described the merger as "making a lot of strategic and financial sense". He said it would simplify the structure, add scale, and create a more investable company.
Both Brickworks and Soul Patts shareholders appeared to agree, with their share prices rising 27% and 17% respectively that day.
For the year to date, Brickworks shares are up an impressive 36%.
Have they peaked, or do they have further to rise from here? Let's see what one broker had to say.
Macquarie revises Brickworks price target
On 30 June, after reviewing Brickworks shares' latest trading update, broker Macquarie Group Ltd (ASX: MQG) revised its price target.
The broker cut its target from $32.20 to $31.70.
Yesterday, Brickworks shares closed at $34.57.
While the broker retained its neutral rating, this revised price target suggests the share price will decline over the next 12 months.
When issuing this revision, Macquarie said:
Retain Neutral. Cap rate compression was a positive outcome for the Property segment, while Building Products outcomes are still soft. The merger ratio is relevant (inferring $34.45ps on SOL's spot price), but we also note that SOL is now trading at a material premium (~34%) to its underlying NAV.
The broker also pointed out that Building Products North America remains weak, driven by economic uncertainty, elevated interest rates, and subdued consumer sentiment.
What should I buy instead?
Given this forecast, ASX investors looking for exposure to the building materials sector might want to consider alternative options.
In an 18 June research note, Macquarie flagged its preference for Reliance Worldwide Corporation Ltd (ASX: RWC) for US building materials exposure, and SGH Ltd (ASX: SGH) for Australian exposure.
Macquarie has assigned an outperform rating and price target of $5.55 on Reliance Worldwide shares. Yesterday, they closed at $4.10, suggesting 35% upside from here.
Macquarie also expects SGH to outperform and has given it a price target of $59.25. Yesterday, SGH shares closed at $52.52, suggesting a 13% upside from here.
