Brickworks (ASX:BKW) 1H19 results & outlook


by Jessica Amir

Brickworks Limited (ASX:BKW) Managing Director, Lindsay Partridge talks 1H19 results, the company's move into the US housing market via its acquisition of US brick manufacturer Glen-Gery and outlook for 2H19.

Jessica Amir:
Thanks for tuning into the Finance News Network. Today I’m joined by Brickworks Limited (ASX:BKW) Managing Director, Lindsay Partridge. Hi Lindsay and thanks so much for your company.

Lindsay Partridge: My pleasure.

Jessica Amir: For those who aren’t familiar with Brickworks, just give us a quick introduction?

Lindsay Partridge: It was formed by a group of Sydney brick makers back in the early Thirties. And at that point in time it had 11 Brickworks around Sydney, and it listed on the Australian Stock Exchange 1961. 1968, it did a famous swapping of shares with Washington H. Soul Pattinson (ASX:SOL), because they were worried about being taken over by London Brick. Progressed without really doing much for quite a while. When I took over in 1999, we had five Brickworks in two States.

We did a major acquisition of Bristile Limited in 2003, which made us national and Australia’s biggest brick maker and we’ve sort of evolved from there. Recently we bought an American brick maker Glen-Gery last year, so now we have something like 40 factories, 2,000 staff on two continents, investment portfolio. So the company’s grown quite a bit since those early days.

Jessica Amir: Now to the three business units in more detail, just tell us about the building products unit.

Lindsay Partridge: Today our building products, there are some well known family brands that everyone would be aware of. Austral Bricks, biggest brick maker in Australia, Austral Masonry number two, masonry producer. We have Bristile Roofing; we’re the number two roofing producer in Australia, so a lot of big brands that are well known. We also have some precast operations. And of course, the United States our latest investment, the Glen-Gery Corporation. We’ve got ten factories there, based in the northeast, focusing on architectural work like institutions, schools, hospitals, that sort of product.

Jessica Amir: And your other department, property development?

Lindsay Partridge: We had surplus land and the opportunity came up, it was zoned industrial. So we formed a joint venture with Goodman Group, almost 15 years ago now and it’s evolved enormously in that period. Total value today is $1.7 billion; we’ve still got $300 or $400 million worth of land put into that. So its got great potential going forward and of course, it had a great result this last period.

Jessica Amir: And lastly, your investments division?

Lindsay Partridge: Soul Pattinson’s as I mentioned before, we swapped a million shares in 1968. Each company continued to buy shares in each other. Today that shareholding stands at, we own 39 per cent of them and they own 43 per cent of us. Our original $26 million investment in 1968 today is worth $2.5 billion.

Jessica Amir: Let’s touch on the first half 2019 results, a great set of numbers. What are the highlights?

Lindsay Partridge: Property was a real highlight. We’ve seen that cap rates are compressing as interest rates are falling. And when we only had a couple of $100 million dollars in property, that didn’t make much impact. But when you’ve got $1.7 billion, we had enormous growth in the asset value. We had a number of buildings completed. So we had development profit. We had one sale of an old brickmaking site, over $132 million, that was the best property result we’ve ever had.

Jessica Amir: Diving into the US market. Just tell those who aren’t familiar about your rationale behind snapping up Glen-Gery and moving into US manufacturing?

Lindsay Partridge: One of the problems we had was that we were concerned that people were looking at us, and couldn’t see that we could grow our building products. Because we’ve got 50 per cent market share in our main business, there’s no way that we really have to take it up any higher market share. So we had to go offshore and America was really a desirable place to go, with lower tax rates, common language, similar laws and culture. So we investigated for over a year, we had a team on the ground. And we decided that if we went into the northeast area, we could have an area there that we could gradually secure and become a very strong and major brick maker, in that area.

Glen-Gery is a business that’s focused on architectural work, schools, hospitals, universities, high-rise buildings in New York. 65 per cent of our sales into areas that are not related to housing. So it’s quite different to the other brick makers there. And of course, the opportunity is to get much better selling prices when you’re making that sort of custom product.

Jessica Amir: Now to your share price, which is up 19 per cent at the time of this recording, over the past 12 months. What can you tell us?

Lindsay Partridge: I think that it’s just a recognition that the company was growing, that there were great opportunities in our property. And of course, our major investment has increased over $500 million this year. So that’s an enormous staggering growth and it’s reflected in the share price. But our view is actually that the share price at the moment is at the highest, undervalued point that it’s ever been. We actually think that it’s worth, should be worth, something in the order of about $25 to $27.

Jessica Amir: Just lastly before we let you go. What’s your outlook for the second half?

Lindsay Partridge: I think it’s going to be a record year for property, clearly with the first half, so that’s good. Souls will continue very strongly with some of their investments, being New Hope Coal Limited (ASX:NHC) and TPG Telecom (ASX:TPM), going very well. Building price is going to be down, but it’s only 25 per cent of our business now, so it’s really quite minor in the scale of things. So overall I’d say we’re going to have a record year.

Jessica Amir: Congratulations on your wonderful results and thank you so much your time, Lindsay Partridge.

Lindsay Partridge: Thank you very much.