Property Trust Arm Saves Brickworks

Brickworks will lift its interim dividend to 21 cents a share for the six months to January 31 after its interim results were saved by its property development arm and not its core building products operations.

While the latter did do well – earnings before interest and tax (EBIT) up 60% to $16 million, US operations saw a 33% fall to $4 million.

Revenue fell 4% in the six months to January 31 to $432 million. Australian revenue fell 2% to $330 million in the half year while North American revenue fell 4% to $102 million.

Brickworks posted an underlying net profit after tax of $90 million, down 10% compared to last year.

But once again it was the company’s property trust arm (a joint venture with Goodman Group) that saved earnings and the dividend. This saw the Property business generate EBIT, a small rise of 3% and the bulk of earnings for the half year.

Management noted that the business benefited from very favourable revaluations and profit on the sale of land thanks to the home building and development boom.

Half year EBIT was down 6% over the prior corresponding period to $127 million but statutory earnings was up 22% to $71 million because of an absence of impairments and other charges from a year earlier.

The small rise in dividend has been a staple of Brickwork’s earnings statements now for several years – incremental increases each half which its controlling shareholder, Washington H Soul Pattinson (it owns 40% of Brickworks and Brickworks owns 39% of Soul Patts) in turn matches (and did so in the latest half – see separate story).

Brickworks said the short-term outlook for owner occupied detached housing in Australia was buoyant, though the level of activity in medium and high-rise developments (units) continues to fall, particularly in Sydney and Melbourne, especially with migration falling and offshore student numbers dropping.

Looking beyond the current stimulus-induced surge in activity, Brickworks claimed significant uncertainty remains.

“Whilst conditions are currently supportive for housing investment, inflationary pressures and the subsequent risk of higher interest rates appear to be increasing,” the company told the ASX.

“In addition, fundamental questions remain in relation to the effectiveness of the vaccine roll-out, and the timing and extent of a return to immigration and full employment, Brickworks said.

“It is also clear that government stimulus has brought forward a large volume of work that has the potential to leave a void once the existing pipeline is exhausted.”

The comment about interest rates is a load of tosh as Reserve Bank governor, Philip Lowe has made it very clear there will not be a rate rise before 2024.

The company clearly doesn’t need cash – it has ended its dividend reinvestment plan it reactivated a year ago at the start of the pandemic.

“This DRP was a prudent but temporary measure, put in place to help preserve liquidity through a period of significant uncertainty around the global economic outlook.

“Accordingly, shareholders who have elected to participate in the DRP will not be receiving shares in respect of the forthcoming dividend or any future dividends,” Brickworks said.

Brickworks chair, Robert Millner said in Thursday’s statement: “In addition to delivering solid earnings, asset growth has been particularly strong during the first half. The value of our 39.4% stake in WHSP increased by $720 million over the period. Including further gains since the end of the half, the market value of this investment now stands at around $2.9 billion.

“Adding the net asset value of our Property and Building Products assets, and taking into account net debt, the total asset backing is over $4.1 billion. This equates to over $27 per share and provides considerable support for our current share price.”

Mr Milner is also chair of Soul Patts.

Investors liked the results and sent the shares up 4.7% to $19.80.

 

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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