Brickworks Limited Reports Property Stabilisation and Strategic Investments for Future Growth

About Brickworks Limited

Brickworks Limited (‘BKW ‘or ‘Brickworks‘) is a diversified group of businesses engaged in manufacturing and distribution of clay and concrete products, property development and investment. BKW has been listed on the ASX since 1962 and has paid a dividend every year since that date. Today the Group has a gross asset base of more than $6 billion.

Property division has stabilised

Brickworks’ property asset valuations appear to have stabilised following the negative impact of increased capitalisation rates across the portfolio in FY24 to 5.2 percent. The higher capitalisation rates reflect the higher cost of capital as interest rates increased in prior reporting periods, when the capitalisation rate increased from 4.1 percent at 1 July 2023.

The prospect of lower interest rates in the second half of FY25 is positive for modest valuation increments from FY26. On 26 September management referred to the stabilisation of market conditions across the Australian property market with the Group’s June valuation process resulting in a moderate gain in the value of the portfolio, partially offsetting the devaluation recorded in the first half-year.

Brickworks own several large-sized industrial facilities that are likely to be significant profit contributors in the medium term. For example, Brickworks consider their flagship Oakdale West Estate to be one of the most valuable industrial property precincts in the country. Development approval has been received for Oakdale East Stage 2 Estate and construction of the cornerstone 58,000 square metre facility for Amazon has commenced.

In Brisbane, a 13-hectare site adjoining the Group’s Rochedale brick factory was purchased by the Brickworks Manufacturing Trust during the year. Brickworks intend to consolidate this site with adjacent surplus land at the brick plant and develop up to 115,000 square metres of gross lettable area. A development application is being prepared with the aim of lodging it in 2025.

Building Products Australia restructured

Building activity in Australia is moving through a cyclical low with residential approvals in Australia at the lowest level for more than a decade. Brickworks have responded to the downturn by implementing restructuring activities to remove duplicated costs. This includes consolidation of Austral Bricks and Austral Masonry into one operating division and a restructure of Bristile Roofing.

Other efficiency initiatives include completion of a new brick plant in Western Sydney which is Australia’s most advanced brick production facility. This has been a five-year project of detailed planning and re-modelling. The brick plant is now operating at design capacity and will surpass any other brick factory in Australia in terms of automation, fuel efficiency, and output.

Strategic Investments

Brickworks owns 94.3 million shares in Washington H. Soul Pattinson (Soul Patts), which is Australia’s leading publicly listed investment house. The 25.7 percent equity interest dates to 1968 and is today valued at $3.36 billion. The stake in Soul Patts has delivered 12.6 percent per annum total shareholder return for the past 25 years compared to 4.2 percent per annum for the All-Ordinaries Index over the same period.

Brickworks also owns 731.7 million shares in FBR Limited, representing a 15.3 percent shareholding worth $26 million.

Solid foundations in place for future growth

Subdued building activity across Brickworks’ key markets in Australia and North America is likely to persist for the next 12 months.

All levels of Australian government are driving ambitious residential building targets and are likely to introduce reforms and incentives that facilitate increased housing supply. This should drive increased demand for building products over the medium and longer term. In North America, completion of the plant rationalisation program, creating a more efficient and cost-effective network for future operations should boost returns as the housing market recovers. Easing US monetary policy is expected to support an increase in activity, particularly in areas where projects have been delayed during the recent period of high interest rates. As conditions improve, the Building Products business should deliver strong returns, following recent plant investments, re-structuring and portfolio rationalisation activities.

Increased rental income is forecast from the Property division over the coming years, as existing Estates are developed and benefit from the mark-to-market uplift in rent as existing leases expire. Over the long term, e-commerce and the digital economy will continue to drive demand for prime industrial facilities for many years to come and Brickworks is focused on meeting this demand by developing opportunities within the current portfolio.

Brickworks’ investment in Soul Patts is expected to continue to deliver a stable and growing stream of earnings and dividends over the long term.

The recent and ongoing development of high-quality assets should deliver long-term recurring cashflow to support Brickworks’ impressive 47-year history of maintaining or increasing shareholder dividends.

The stability of Brickworks is illustrated by the continuity of its leadership group with just six previous executive leaders since founding 90 years ago in 1934. Success factors that come with leadership stability include long-term vision, strict adherence to core values, sound corporate governance and a team of disciplined and motivated employees. This leadership stability and earnings growth consistency should continue to reward shareholders over the coming decade.