Tuesday’s trading session on the ASX saw cautious optimism on the part of Brickworks Ltd and software firm TechnologyOne throw caution to the wind.
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Brickworks Ltd (ASX: BKW) has seen a first quarter trading improvement for 2022-23 but the Chairman and CEO both warned yesterday the company is facing softer demand as rising interest rates slow the home building and construction sectors and rising energy prices drive up costs.
“Following the higher earnings achieved in FY22, momentum across Building Products operations in Australia and North America has continued in recent months,” CEO Lindsay Partridge told the annual meeting on Tuesday.
“A strong order book has resulted in first quarter FY23 revenue and EBITDA being ahead of the prior corresponding period in both countries (Australia and the US),” he added.
Mr Partridge told the meeting that “Whilst the start of FY23 has been positive, tightening monetary policy set to act as a handbrake on the housing industry in the medium term.”
“In Australia, this is increasingly evident in declining building approvals data and builders reporting reduced sales activity and display home foot traffic. In North America, we are more insulated from a housing slowdown, with a much larger share of sales into the non-residential sector, which is expected to remain resilient.”
“Across both countries, we have faced challenges such as labour and trade availability in many of our operations, albeit these issues have eased in recent months.
“Despite significantly higher diesel and electricity prices, we have been less exposed to the extreme energy prices than many other manufacturers, with long term fixed price gas contracts in place.”
Positively, he said the company was experiencing significant rental growth across new developments and lease renewals.
“This is expected to offset the impact of higher interest rates,” Partridge said.
“We are continuing to experience strong demand for our prime industrial property, which is being fuelled by long term structural tailwinds. To meet this demand, development activity in the short term will be focussed on building out the remaining vacant land at the Oakdale West Estate.
“We expect to complete the $300 million sale of Oakdale East Stage 2 into the Industrial JV Trust in the first half of FY23. Beyond that, we have identified three additional properties for potential sale into the Trusts over the coming years, to support continued long-term growth.”
However, he warned Brickworks expects a period of softer demand once the existing pipeline of work is completed.
The company also warned that a gas supply crunch on Australia’s east coast was creating extreme market volatility and price increases.
“The gas we use to fire the bricks in our kilns cannot be easily substituted for alternative renewable energy sources,” chairman Robert Millner also told the annual meeting on Tuesday.
“As such, ready access to reliable and affordable gas is essential for our industry. We only need to look to Europe to understand the cost of continued inaction by government.
“In that region, manufacturers are being forced to shut down operations, including some of our valued suppliers.
“To avoid a similar situation in Australia, it is critical that additional gas supplies that are reliable and affordable for domestic users are brought online as quickly as possible,” Milner said.
Brickworks shares edged up 0.7% to $21.05.
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Shares in Brisbane-based enterprise software company TechnologyOne (ASX: TNE) jumped more than 5% on Tuesday after the company revealed solid growth in revenue and earnings, and a special 2 cents per share dividend
The solid revenue growth led to TechnologyOne hitting the top end of its profit before tax guidance.
Total revenue was up 18% to $369.4 million for the year to September with total annual recurring revenue (ARR) up 25% to $320.7 million (ie, the majority of total revenue) with the key product, software-as-a-Service (SaaS) ARR up 43% to $274.2 million..
Profit before tax was up 15% to $112.3 million with after tax profit jumping 22% to just on $89 million.
TechnologyOne now has over 800 large scale enterprise organisations with millions of users, making TechnologyOne the largest single instance SaaS ERP offering in Australia.
The company also had a lot of success in the UK market, with its ARR almost doubling to $17.5 million.
TNE will pay a final dividend of 10.82 cents plus the 2 cents per share special.
Directors said the 2 cents per share special was being paid “in light of the company’s strong results, our confidence going forward, and the significant fire power in our balance sheet to invest in growth and opportunities “
With the special payment the total for the year is 17.02 cents per share, up 22% in line with the rise in after tax earnings.
Directors said the company continues to have a strong balance sheet with net assets of $239.1 million, up 26% and cash and cash equivalents of $175.9 million, up 22%.
CEO Ed Chung said in the release “Our ability to deliver these results is due to TechnologyOne’s clear vision, strategy, culture and our significant investment in R&D
“Our strategy is clear – we strive to deliver a compelling customer proposition, providing our customers with any device, any time access from anywhere around the globe, as well as a simple and cost-effective way to run their enterprise.
“We also exceeded our ambitious annual recurring revenue (ARR) targets and ended legacy licences. I’m proud to announce that we have successfully completed our strategy ahead of schedule.
