Brickworks shares fell yesterday despite a record interim profit and higher dividend, all thanks to the booming housing sector.
The company, which is part of the Washington H Soul Pattinson empire controlled by the Milner family of Sydney and the country’s biggest brickmaker, reported a interim profit of $75 million, up 19.4%.
That was before one off items. Taking them into account, net profit rose 82.2% to $76.9 million in the six months to January 31, compared to the first half of 2014-15 when earnings were weighed down by non-cash impairment charges.
Interim dividend was lifted 6.7% to a fully franked 16 cents a share, which given the size of the rise in earnings, is a bit parsimonious.
The shares eased 0.9% in a generally weaker market, to $15.61.
The reason for the surge in earnings and revenue – higher profit margins in the brick making and tile businesses as building demand soared to its highest level for years, especially in NSW and Victoria.
Revenue was only up 3% to $360 million, but earnings exploded in the building products division thanks to higher margins.
Earnings Before Interest and Tax (EBIT) for the building products arm, which supplies bricks, timber, and other building materials along the East coat, Western Australia and New Zealand, jumped by just on 25% to $32.6 million, with Brickworks reporting increased sales volumes, product prices, and plant efficiencies.
“Residential building activity is now at the highest level on record, driven by the major markets of Sydney and Melbourne,” CEO Lindsay Partridge said yesterday.
"As a result, the industry has now effectively reached capacity in these markets, due to bottlenecks caused by trade and product shortages, although Brickworks continues to meet all supply commitments."
The land and development business saw a 17.3% rise in EBIT to $45.4 million, helped by property revaluations in the property trust. The value of the property trust fell 14.1% to $933.5 million, however, after the sale of the Coles Chilled Distribution Centre in July last year.
Brickworks, also owns 42.72% of listed investment group Washington H. Soul Pattinson, which in turn owns more than 40% of Brickworks.
Underlying EBIT from Brickworks’ investments fell 11% to $26.8 million. The market value of the stake in Soul Patts increased $318 million to $1.72 billion.
In commentary on the result and the outlook, Mr Partridge said the construction industry is struggling to build an unprecedented wave of new homes.
"Residential building activity is now at the highest level on record, driven by the major markets of Sydney and Melbourne," Mr Partridge said.
"As a result, the industry has now effectively reached capacity in these markets, due to bottlenecks caused by trade and product shortages, although Brickworks continues to meet all supply commitments."
As a result, he said the short-term outlook for building products remains very positive, with the lift in first-half earnings for this division set to be maintained over the full year, which sounds like an earnings upgrade.
Meanwhile shares in the other half of the dynamic duo, Investment group Washington H Soul Pattinson’s, rose half a per cent yesterday after it benefited from a sharply higher inflow of dividends and other income from some of its flock of investments.
Those investments include Brickworks, TPG Telecom, Australian Pharmaceuticals Industries, New Hope, CopperChem and Exco Resources.
Interim profit rose by nearly 42% in the January half year to $95.4 million, helped by higher earnings from TPG Telecom, Australian Pharmaceuticals Industries and Brickworks.
But underlying profit dipped to $83.6 million, thanks to the impact of lower coal, oil and copper prices which reduced the results of mining firm New Hope, CopperChem and Exco Resources.
The company increased its interim dividend by one cent, or 5%, to 21 cents, fully franked.
Soul Patts shares rose 0.9% to $16.75
