Brickworks earnings to hit another record thanks to property boom

Brickworks (ASX: BKW) has continued to gather earnings momentum thanks to Australia’s property boom. 

The building products and investment company expects to deliver record property earnings in the first half of FY22, with earnings before interest and taxes (EBIT) between $290m and $310m, compared to $253m in the previous period.

“We have seen strong demand and sustained growth in the value of our Property Trust over a number of years," commented Brickworks managing director Lindsay Partridge. 

"The covid 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."

In addition to its earnings update, Brickworks announced the purchase of 121 hectares of land at Bringelly, South West Sydney. 

Subject to approvals, the land will be used as a clay resource to supply the company’s existing brick plants. 

Brickworks’ old clay resource at Oakdale East will then be sold, resulting in a ‘significant one-off land sale profit’. 

Brickworks shares are up 3.7% at noon.

Fundamentals 

The pandemic has accelerated industry trends towards online shopping and technology, driving the value of industrial property. 

Brickworks’ earnings have been fulled by such structural tailwinds, reporting a 95% jump in FY21 underlying profits. 

The tailwinds have clearly carried over in FY22, given 14.7% to 22.5% forecasted earnings growth in the first half.

What brokers think 

Consensus rates Brickworks a Hold.

Following a first quarter trading update, Macquarie lowered its earning per share (EPS) forecasts for Brickworks due to declining margin expectations for the Building Products (BP) North America division.

Based on a valuation of $23.10, Morningstar believes Brickworks is currently trading above fair value.