The Brickworks Limited (ASX: BKW) share price is down after announcing its FY22 result.
However, it’s worth noting it rose more than 5% yesterday, so it’s up substantially over the past two days.
Brickworks is a major building products producer and also owns a growing property portfolio.
Brickworks FY22 result
- Continuing operations revenue up 28% to $1.09 billion
- Continuing operations underlying EBITDA up 133% to $1.06 billion
- Continuing operations underlying net profit up 159% to $746 million
- Record statutory profit of $854 million, up 257%
- Final dividend up 3% to 41 cents per share
- Total full year dividend up 3% to 63 cents
There are a few different divisions to Brickworks, so we’ll look at each segment.
Property
The industrial property trust that it operates along with Goodman Group (ASX: GMG) saw the total value increase by 69% to $3.09 billion, with Brickworks’ share increasing to $1.54 billion.
It benefited from property revaluations to the tune of $227 million. It also saw development profits of $387 million. The trust completed the state-of-the-art Amazon distribution centre, the first facility at the Oakdale West business park in Sydney.
The property trust saw net trust (rental) income rise by 17% to $36 million.
It also launched the Brickworks Manufacturing Trust with Goodman, comprising a portfolio of 15 manufacturing plants, tenanted by Brickworks businesses including Austral Bricks, Bristle Roofing and Austral Masonry. Total trust assets of $416 million represented a premium of $280 million to the value on the Brickworks balance sheet prior to the sale.
Gross cash proceeds of $209 million, representing 49.9% of the asset value, were used to pay down group debt. Brickworks’ 50.1% interest in the trust has an equity value of $211 million. The manufacturing trust will start generating rental profit for Brickworks in FY23.
Several of the manufacturing trust properties have “the potential for additional development and greater utilisation.”
Building products Australia
Brickworks said that the Australian building products division made $205 million of EBITDA, which includes a $89 million profit from the sale of operational land into the manufacturing trust. Excluding that, EBITDA from continuing operations went up 19% to $116 million and EBIT grew 34% to $64 million.
Austral Bricks saw a “particularly strong” performance thanks to higher sales and improved margins, despite inflation. It increased prices to recover increasing costs.
However, it’s forecasting lower building activity over the medium term due to higher inflation, higher interest rates and pressure on global supply chains.
Building products North America
In North America, it made $48 million of EBITDA and EBIT of $25 million, though this included $13 million from the sale of several surplus land holdings.
Excluding the land sales, EBITDA rose 113% to $35 million. It has increased its sales to the southern residential market, primarily in Texas.
This segment closed two more plants during the year. It’s confident that the plant network is the right size for its forecast production, with each plant operating at a “much higher utilisation and improved efficiency”.
Investments
Its investment division saw EBIT increase by 86% to $181 million. Cash dividends increased by 5% to $61 million.
Thoughts on the Brickworks share price
This was a strong result from all of its divisions. However, uncertainty is increasing, which could weigh on the Brickworks share price in the next couple of years. But, I believe it’s a buying opportunity in weakness.
There is a significant development pipeline in its property trust, which I’m excited about and this could add a lot of value for the business. It also said that it recently executed a non-binding agreement with Goodman to investigate the development of the mid-Atlantic site in Pennsylvania.
Brickworks noted that its inferred market value was $33.15 per share on 31 July 2022, so there’s a huge discount there. Higher interest rates may hurt the property valuations a bit, but not to the extent of the implied discount, in my opinion. Plus, it has already sold half of the manufacturing trust, using that cash to pay down debt.
