The Brickworks Limited (ASX: BKW) share price looks compelling after the company’s FY23 update, in my opinion.
UK supply agreement
Brickworks announced that it has executed a supply agreement with Brickability, a “market-leading building products distributor in the UK” to sell bricks into the UK market.
Management said that the UK annual demand is around 3 billion bricks, of which around 10% to 20% is sourced from imports.
Brickworks is going to serve the market from North America, with initial supply to be sourced from the Pennsylvania plants of Hanley and Pittsburgh. Its mothballed Rocky Ridge plant in Maryland will be re-commissioned to produce “dedicated bricks specifically tailored for the UK market.”
It will also investigate the feasibility of additional product supply from Australian plants.
The ten-year supply agreement includes a minimum purchase quantity of 10 million bricks per year and expects this will “build on this over time”.
FBR Ltd (ASX: FBR) investment
Brickworks has been steadily buying FBR shares – it now owns almost 20% of the business.
The Managing Director of Brickworks, Lindsay Partridge, said:
They have recently commenced the commercialisation process for a bricklaying robot that has the potential to build walls faster than traditional methods, and with much reduced labor…as the largest brickmaker in the country we have much to benefit from its success.
Group outlook and thoughts on the Brickworks share price
Brickworks said that despite the rising interest rates, the development pipeline within its industrial joint venture trust is “strong”.
It’s expecting increasing headwinds with its building products in the second half, as the existing pipeline of construction work is built.
The business now has a “conservative gearing” level, together with its portfolio of assets, means that it’s “well-placed to meet any future challenges and continue to deliver strong performance for shareholders.”
I think that the business has a strong asset base that can generate strong and consistent cashflow, and to pay dividends. The Brickworks share price appears to be at a significant discount to its inferred net asset value, so I think it’s worth buying.
