Brickworks cashes in on Milton merger and property revaluations

Brickworks (ASX: BKW) has reported record half-year FY22 earnings as a result of massive one-off profits and tailwinds within the Australian property market. The company's stock is up 4% in early-trade.

Financials at a glance

• Revenue of $535m, up 24%

• Underlying net profit of $330m, up 269%

• Statutory net profit of $581m, up 720%

• Interim dividend of 22 cents per share, up 5%

Cashing in on Milton merger

Statutory profits were boosted by a significant one-off profit from Washington H Soul Pattinson’s (ASX: SOL) merger with Milton. 

The merger resulted in a $279m one-off (non-cash) profit to Brickworks.

Property valuations continue to rise

Brickworks’ property portfolio delivered record half-year earnings of $358m, up 289% compared to the previous period.

The bulk of the earnings increase was driven by revaluation profits of $228m.

“We have seen strong demand and sustained growth in the value of our Property Trust over a number of years. The pandemic has only fuelled this growth, by accelerating industry trends towards online shopping and increasing the importance of well-located distribution hubs and sophisticated supply chain solutions,” said Managing Director Lindsay Partridge.

Building products 

Earnings for Building Products Australia rose 66% to $27m, buoyed by a strong recovery in Sydney and Melbourne sales after restrictions were lifted around last November.

Encouragingly, earnings margins increased by 3 percentage points to 16% due to improved production efficiencies and price increases across most business units. 

“The performance of Austral Bricks was particularly strong, with revenue and earnings higher in all east coast states. Brick sales have been supported by a long backlog of detached housing projects steadily moving through the construction pipeline,” said Patridge.

New property trust on the horizon

Brickworks has been exploring opportunities to realise value from its portfolio of operational land, and now in advanced discussions for a potential Joint Venture Property Trust in partnership with Goodman Group (ASX: GMG).

An initial portfolio of 15 Building Products' properties has been identified, worth around $415m.

Brickworks does not expect the trust to have a material of impact on earnings in its initial stages.

Outlook

Brickworks flagged several near-term risks including:

• Severe wet weather and flooding along the east coast reducing construction activity in markets such as Sydney and Brisbane

• Ongoing margin pressures in North American operations

• The Russia-Ukraine war driving upward pressure on inflation, interest rates and a decline in consumer confidence

Notwithstanding the potential headwinds, Partridge believed the business is in a strong position with a diversified portfolio of assets.

"The increasing scale of our operations means we are on track to record over $1 billion in annual Group revenue, for the first time."

Brickworks 12-month price chart