Brickworks Limited (Brickworks, the Group, ASX: BKW) is a diversified group of businesses engaged in property development and investment, and manufacturing and distribution of building products. Brickworks has been listed on the ASX since 1962 and has paid a dividend every year since that date.
Shareholder returns driven by long term asset growth
$1,000 invested in Brickworks 25 years ago is worth more than $16,000 today. This includes re-investment of dividends and is equivalent to total shareholder returns of 11.7 percent per annum. Underpinning these returns is long-term asset growth.
Brickworks’ assets include a 26 percent interest in Washington H. Soul Pattinson and Co. (Soul Patts) and a 15.3 percent stake in FBR Limited, worth a combined market value of $3.4 billion. Soul Patts is Australia’s leading publicly listed investment house and Brickworks is the largest shareholder.
Other assets include Property Trusts with a net asset value of $2.1 billion, Building Products operations with net tangible assets of $532 million and 3 land parcels held within Building Products for future development at an “as is” value of $219 million.
After deducting net debt of $682 million, Brickworks’ total inferred net asset backing is around $5.5 billion. This is equivalent to $36 per share and compares to a current share price of around $28.50. The net tangible assets per share as at 30 June 2024 are reported in the balance sheet at $19.42. The key difference between the two measures is that the full market value of development land and Investments is not reported.
Positive long-term earnings and dividend outlook
The long-term outlook for Brickworks is positive on several fronts.
The structural trend towards e-commerce and the digital economy will continue to drive demand for the Group’s prime industrial facilities in the decade ahead. Brickworks has observed that lease enquiry for large-sized facilities is particularly strong.
Brickworks also confidently anticipates significant growth in rental income from its Property Trusts through new developments and lease renewals of existing assets. The Group’s Property Trust assets have weathered a $215 million devaluation in FY24 following an increase in capitalisation rates across the portfolio to 5.2%, from 4.1% in FY23. Higher rental income from lease renewals and future developments, as well as the likelihood of a stable interest rate environment in the years ahead, imply a favourable outlook for the Group’s property segment.
The short-term outlook for Building Products in Australia and North America is subdued. Residential commencements in Australia in FY24 were at their lowest level since 2012 at 155,700. In North America the detached houses segment is recovering, although this recovery is offset by declines in multi-residential and non-residential building. Beyond the short term however, conditions in both markets are set to gradually improve.
The history of long-term outperformance by Soul Patts is likely to continue. Soul Patts is Australia’s leading publicly listed investment house and is expected to deliver a stable and growing stream of earnings and dividends over the long term.
The dividend outlook is also favourable. The 2024 final dividend at 43 cents fully franked was up 2 percent compared to the previous final dividend which has increased eleven years in a row. Brickworks has the outstanding record of maintaining or increasing dividends every year for the past 48 years.
