Brickworks Benefits From Strategic US Acquisitions | KOSEC

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Brickworks Benefits From Strategic US Acquisitions

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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Building products manufacturer, Brickworks Limited, has released its trading update for the four months leading to 31 May 2020. Since it’s inception since 1908, the group now oversees three separate divisions – Building Products (Australia and North America), Investments and Property. More notably, the diversified nature of the business has been the reason behind Brickworks’ ability to increase or maintain dividend for more than three decades.

This is evident in the case of the recent declaration of an increased interim dividend of 20 cents per security. Specifically, the increase was attributed to the increasing rental income generated from reliable dividends from its 39.4% interest in Washington H. Soul Pattinson (WHSP) and Property Trust. Thus, this is one of the beauties of Brickworks as it is one of the merely eight companies who have been able to increase or maintain dividends each year since the start of the century.

Despite the coronavirus pandemic, the company’s operations in North America has proved to be resilient. Specifically, Brickworks has scaled up its business, having completed three separate acquisitions in the past 1.5 years. All acquisitions were made following a strategic review which identified the North American brick industry to present promising long-term growth for Brickworks. Yet, these decisions have proven to be wise. This is because the completed acquisitions contributed to the division's sales revenue which advanced 26 per cent relative to the previous corresponding period. Additionally, the firm’s North America division now holds leadership positions in key states across Midwest, Northeast and Mid-Atlantic regions jointly supported by the 800 employees Brickworks hires.

Back at home, Brickworks has 1,300 employees supporting 26 manufacturing sites and more than 40 design centres and design studios across the country. While trading activity has remained resilient, sales revenue has posted a 10 per cent decline in the four months leading to May 2020. More notably, the closure of plants has allowed Brickworks to boost its cash flow. Yet, it also resulted in an adverse impact on earnings. Nevertheless, the region posted positive earnings result for the period.

Moving forward, Brickworks is likely to benefit from upcoming initiatives. Within the firm, Brickworks has gained the development approval for a new $125 million face brick plant in New South Wales. More recently, it was announced on 01 June 2020 where new home buyers could potentially be awarded $20,000 or more under a new government scheme which is expected to be announced later in the week.

Prime Minister Scott Morrison reiterated his stand where residential building sector remains one of the sectors under the watchlist. More broadly speaking, the grant scheme, is in the final touches on a policy that would encourage demand and spur the economy. Therefore, when demand returns, Brickworks stands to benefit from the residential sector as well as increasing demand for industrial assets attributed to the trends towards online shopping.

By Caroline Wong 

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