The Brickworks Limited (ASX: BKW) share price is down more than 2% after reporting its FY24 half-year result.
Brickworks owns building product businesses in Australia and the US, it has a large property portfolio, and it has an investments division which is mainly Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares.
Brickworks FY24 half-year result
Here are some of the main highlights for the six months to 31 January 2024:
- Total revenue down 6%
- Building products Australia EBITDA up 5% to $52 million
- Building products North America EBITDA up 43% to $21 million
- Property devaluation of $233 million
- Statutory net loss of $52 million, a 115% worsening
- Interim dividend per share up 4% to $0.24
Divisional breakdown
Brickworks said its building products divisions have benefited from a period of significant investment and portfolio ‘rationalisation’ (including some closures) have been completed over the past five years, which is now supporting higher margins, despite the impact of inflation and lower building activity in some key areas.
In the Australian building products division, initiatives are expected to deliver annualised savings of $15 million from the second half of FY24, with a reduction of 100 staff.
Within the industrial joint venture trust, with partner Goodman Group (ASX: GMG), there was net trust income growth despite the impact of higher borrowing costs. During the period, development approval was secured at the Oakdale East Estate (stage 2), along with lease pre-commitment from a large anchor tenant.
When a new property project is completed, it results in development profits within the industrial JV property trust – there were less development profits this time as the Oakdale West estate nears completion.
In December 2023, Brickworks sold its 50% interest in the M7 Hub estate, one of the industrial JV trusts. The sale delivered $117 million in gross proceeds, representing a 154% increase since the estate was completed in 2012. However, a $16 million loss was incurred because the sale was below the 31 July 2023 book value.
Outlook for the Brickworks share price
Brickworks said its order intake is softening in Australia and it’s expecting conditions to become more challenging for the rest of FY24. It’s taking the opportunity to carry out maintenance activities at its plants, in preparation for the years ahead. It expects strong demand in the decade ahead.
For the industrial properties, it’s continuing to experience strong lease enquiries for large-sized industrial facilities. Brickworks said it’s well placed to meet the strong demand and benefit from higher market rents.
Once the Oakdale East Stage 2 is complete within four to five years, total market rent potential from the property trust assets is expected to be around $340 million, up from the passing rent of $172 million on currently leased facilities. The uplift on existing facilities will be progressively realised over a longer period upon lease renewals and reviews. Around 35% of current leases have rent increase caps, and this means it will take time to achieve full market rent on those facilities.
WHSP shares are expected by Brickworks to deliver a stable and growing stream of earnings and dividends over the long-term.
I think Brickworks is a great business, but I wouldn’t call it as good value as before a few months ago. The property assets are compelling, but I’d rather buy WHSP shares over Brickworks at the moment because of its greater diversification and ability to diversify further over time.