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Brickworks share price: where next following earnings upgrade?

The Brickworks share price surged on Wednesday after upgrading its full-year earnings (EBIT) guidance.

Despite the name, Brickworks (ticker: BKW) does much more than just make bricks.

It has been a hallmark of consistency since listing on the ASX in 1962 – paying a dividend every year since then. From an operational perspective, the company has operations spanning Australia and North America, a portfolio of industrial assetsand a significant stake in the storied investment firm Washington H. Soul Pattinson.

Property

Brickworks on Wednesday announced that it expected its property earnings (EBIT) to come in at between $240 million to $260 million for the full-year, marking a significant leap from the company’s prior year EBIT of $129 million.

Much of those profits – approximately $100 million – is expected to be driven by Brickworks' stake in the Joint Venture Industrial Property Trust, following a significant portfolio revaluation.

'Given the number of sales and the steep movement in transaction pricing, an independent valuation of our Property Trust assets has been completed, and this process has resulted in further compression of capitalisation rates across our portfolio,’ said Lindsay Partridge, the Brickworks Managing Director.

Beyond the revaluation of the Property Trust, management said the completition of a number of key developments in Oakdale East were also expected to boost full-year earnings.

Looking further out, Brickworks said it was on track to complete a number of key projects in FY22 and FY23, including the Amazon facility during the first-half of FY22 and what was described as an ‘even larger’ Coles distribution centre in FY23.

The stock was bid significantly higher off the back of this news, with the Brickworks share price up 8.42% to $22.79 per share by 12:36 pm.

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Building products

Beyond the expectation of solid property earnings, management also said that it had observed good sales momentum in its building products units across Australia and North America.

This momentum said the business, means that the expectation is for the Australian building products segment to record higher earnings (EBIT) in FY21 than it did in FY22.

Despite the pandemic putting significant strain on Brickworks’ North American business unit during the first-half of the year, the company still expects year-on-year earnings growth. Momentum however, has returned with Mr Partridge saying 'We have seen a strong rebound in sales volume to our housing customers in May, with this segment currently making up around 60% of total sales. Pleasingly, we are now meeting the sales targets set at the time of the Redland Brick acquisition, prior to the pandemic.'

As a result and off that current momentum, the expectation is for FY21 EBIT in North America – in US dollars – to be higher than FY20.

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