Brickworks Announces 20-year Deal with Amazon | KOSEC

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Brickworks Announces 20-year Deal with Amazon

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC - Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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As of the 30th of June, Brickworks Limited (ASX:BKW) has announced that it has entered a 50:50 joint venture with Goodman Group (ASX: GMG) for a 20-year pre-commitment lease with Amazon. The lease pertains to an Australian distribution centre that will allow Amazon greater exposure to their Australian customers. There are 14.9 hectares of land on which a new distribution centre will be built, with target completion for the second half of 2021. Additionally, there will be 53,500 square meters of base floor area that totals 191,170 square meters over three floors.

Due to present macroeconomic conditions concerning the COVID-19 pandemic as well as fears of another shutdown, e-commerce has seen a surge. Amazon will now capitalise upon this with the US e-commerce company following Coles Group (ASX: COL) 2019 announcement that they will be using the site for distribution operations. Operating through the JV Trust, the Oakdale West site will allow for accelerated growth in the Australian sector and boost the JV Trust to managing around AUD3 billion in assets.

This announcement follows copious speculation in the media where Brickworks announced that they were in talks with a customer for the warehouse development but did not mention Amazon. The land entered into the JV Trust in 2016 and will make use of state-of-the-art systems to support e-commerce expansion, and with the remaining area provides a pipeline of an excess of five years of development. Compounding on this is the 20-year lease agreement which BKW has received, of which is still a pre-commitment, yet signals future revenues which will support the business.

Property that JV Trust controls comes to AUD710 million at the end of the first half of the financial year. BKW will be releasing their 2020 annual results on the 24th of September, and the exact figures will be of great interest to investors. Since 1976, BKW has delivered an increasing dividend and announced a new 20 cents per share interim dividend. Noting this strong financial position, as well as other arms of the business such as Building Products Australia that showed net tangible assets of AUD759 million; with the North American division at around AUD260 million; BKW growth looks to be sustainable.

Further positivity surrounding BKW is the new government HomeBuilder scheme which is a tax-free grant created on a Federal level to stimulate residential construction. Each applicant is eligible for AUD25,000 to help renovate or build their homes. An estimate of 30, 000 homes will be completed before Christmas. GMG, within the JV Trust, also has a good track record of financial strength, with a recent dividend released on the 29th of June for AUD0.15. This development has great potential for the future of BKM and GMG and reveals a developing e-commerce landscape.

By Caroline Wong 

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