A strong surge in the contribution from its property business allowed Brickworks Ltd, part of the Washington H Soul Pattinson Group of companies to report a solid improvement in interim net profit for the six months to January 31.
Brickworks said its “underlying” net profit from continuing operations of $160 million was up 37% from the prior corresponding period while the statutory net profit of $114 million was up 18% (excluding discontinued operations and the impact of significant items).
Brickworks Chairman Robert Millner (who with other members of his family dominates Soul Patts and the other companies with only a small shareholding) said in yesterday’s statement: “Our strong financial performance during the period again reinforced the benefit of our diversification strategy.”
“We believe Brickworks offers investors compelling value, with the inferred asset backing of almost $27 per share, exceeding the share price by close to 50%. The value of our shareholding in WHSP alone, at $2.8 billion, is approximately in line with Brickworks’ market capitalisation,” he said.
Interim dividend was lifted by one cent to 19 cents a share, an increase 6% from the corresponding period of 2017-18. That’s a much smaller rise than the 18% rise in statutory earnings or the 37% jump in the underlying figure.
The company’s major activity is brick and tile making (and associated building products) and the contribution from that tumbled as the slowdown in new dwelling investment bit hard.
The company said its Building Products Australia business saw a 35% slump in earnings before interest and tax (EBIT) to $26 million in the half as total revenue remained steady, at $375 million.
The company said there was with an increase in the revenues from Austral Masonry and Austral Precast, offset by lower revenue from Austral Bricks and Bristile Roofing.
But offsetting that was a big one-off boost to EBIT from its property business.
“Property EBIT was $132 million, up 167% on the prior corresponding period. The settlement of the Punchbowl property sale in August resulted in an EBIT contribution from land sales of $35 million,” Brickworks said yesterday.
“In addition, a revaluation profit of $67 million was recorded within the Property Trust, following a 50-basis point reduction in capitalisation rates across the New South Wales industrial property portfolio.
“Brickworks’ share of net Property Trust assets is now $625 million, an increase of $87 million during the period,” directors added.
And its huge investment portfolio (which includes a 39% stake in Soul Patts which was reduced in the half year) saw a steady EBIT contribution of $61 million with cash dividends received from Soul Patts in the half year totalling $34 million.
During the period, Brickworks sold 7.9 million Soul Patts shares, at a weighted average price of $26.37 per share, delivering total cash proceeds of $208 million. Soul Patts shares traded higher than that figure yesterday at $28.22.
Brickworks retains 94.3 million shares in WHSP, equivalent to a 39.4% interest. Soul Patts owns 43% of Brickworks.
Brickworks shares rose 0.8% to $18.28. That’s up sharply from the most recent low of $14.99 in the big sell-off last November and the rebound has happened despite the further slowing of building approvals and home lending, as well as the slowdown in apartment activity and the rising threat of the ALP winning the next federal election and introducing its changes to negative gearing tax rules.
Shares in Washington H. Soul Pattinson rose 0.8% yesterday after revealing a 12.2% rise in what it describes as “regular net profit” (to $186.7 million) for the half year to January 31.
WHSP uses the non-standard metric of “regular profit after tax”, because it considers it to be a better indicator of the underlying profit of the Group.
Reported net profit after tax (NPAT) was $179.2 million for the half year, up 22.6% on the previous corresponding period.
Directors set a fully franked interim dividend of 24 cents share, up a single cent from the interim for 2017-18.
Again the rise of 4.3% was much smaller than the rise in any of the profit measures used by directors.
The shares ended at $28.83.
Directors said the net increase in the ‘regular profit’ was attributable to a number of investments materially increasing contributions, notably:
“New Hope Corporation – the NSW and Queensland coal miner up 27.3% due to higher coal prices and increased volumes from Bengalla; and Brickworks up 73.7%, driven by very strong property earnings, which were partly offset by: Round Oak Minerals, due to significant start-up costs and expenses associated with the development of various projects.”
WHSP Chairman, Robert Millner said: “The WHSP Group continues to improve its performance with another record regular result for the first half.
“New Hope is enjoying continued strength in thermal coal prices in addition to increasing its production volumes in recent years through the well-timed acquisition of the Bengalla coal mine.
“Brickworks had a strong result, driven by earnings from investments and the property division which highlights the benefits of diversification and the robustness of Brickworks’ portfolio of assets.
“During the first half, the value of WHSP’s portfolio increased by 10.2%, outperforming the All Ordinaries by 17.0%. While the equity markets suffered a correction, WHSP’s portfolio increased which shows the quality of our assets,” he said.
