After posting a record FY22 net profit, Brickworks flags weaker 2H FY23 market conditions

Brickworks (ASX: BKW) was struggling to hold onto a 1% gain at noon after the building products company released a mixed trading update at its AGM today.

In the wake of higher earnings achieved in FY22 – including net profit (NPAT) of $746m, up 159% from the previous year – managing director Lindsay Partridge flagged a period of softer demand amid higher interest rates.

Despite a positive start to FY23, Partridge was quick to remind investors that tightening monetary policy was likely act as a handbrake on the housing industry in the medium term.”

The company also told investors that inflationary impacts were “significantly increasing the cost of doing business”.

Encouraging takeaways

Despite management’s more sobering outlook for FY23, solid takeways with today’s update weren’t hard to find.

For starters, management flagged that the higher earnings achieved in FY22 across building products operations in Australia and North America has continued into FY23.

Due to a strong order book, first quarter FY23 revenue and earnings (EBITDA) are ahead of the previous period in both countries.

Management also expects Washington H. Soul Pattinson (ASX: SOL) – within which Brickworks owns a 39.4% interest - to continue to deliver a stable and growing stream of earnings and dividends over the long term.

Headwinds in the second half

Partridge also notes the joint venture Industrial Property Trust with Goodman Group (ASX: GMG) is performing positively.

Over the past decade the JV has grown significantly and now has a total asset value of over $1.7bn. 

However, across building products, the company expects increasing headwinds in the second half, as the existing pipeline of construction work is built out.

“Over the last 12 months we have built the asset base of the Company considerably, resulting in a conservative gearing level,” notes Partridge.

“This strong financial position, together with our diversified portfolio of high-quality assets, means that Brickworks is well-placed to meet any future challenges and continue to deliver strong performance for shareholders.”

What happened at the full year FY22?

In September, Brickworks announced a record underlying Net Profit After Tax (NPAT) of $746m for FY22, up 159% from the previous year.

After including significant items and discontinued operations, the statutory NPAT was $854m, up 257%.

The company declared an increased final dividend of 41 cents per share (CPS), bringing total full-year dividends to 63 CPS.

What brokers think?

Brickworks share price is down around -10% over 12 months but has been trending higher since falling to a low of $17.00 mid-June.

Consensus is Moderate Buy.

Based on Morningstar’s fair value of $24.82 the stock appears to be undervalued.

Mid October, UBS upgraded Brickworks to Buy from Neutral after reviewing the impact of housing construction trends and property valuations upon the Australian Building Materials sector.

After raising its property valuation for Brickworks, the broker’s EPS forecasts is up 30.8% in FY23 and 117.5% in FY24.

The broker’s target price rises to $25.30 from $23.

With earnings expected to come from a strong pipeline of work from housing activity in Australia and improving non-residential construction activity in the US, Ord Minnett has increased its price target to $29.90 from $27.50 and maintains a Buy rating (23/09/22).

Brickworks share price over one year.