Building materials group Brickworks (BKW) has given a bullish outlook for the sector running into 2017.
After reporting solid profits yesterday for 2015-16, the company, which is based in Sydney forecast another improvement in the coming year saying that the boom in housing construction is showing few signs of ending.
It highlighting the high levels of housing starts in the eastern states which are forecast to continue for sometime.
The company said the outlook for its core Building Products group’s 2017 earnings “remains positive” and “will be underpinned by a full order book and a long pipeline of work at higher margins in our major east coast markets.”
While earnings in its Land and Development business earnings "be supported by the sale of Oakdale West into the Property Trust, and an unprecedented level of development activity within the Trust.”
Investment earnings (from holdings in companies such as Washington H Soul Pattinson) "are expected to deliver steadily increasing earnings and dividends over the long term.”
Investors though responded cautiously, marking the shares up 1.3% to $13.47.
Brickworks reported flat earnings for the year to July of $78.2 million on revenue which rose to $750 million from $725 million a year earlier. Earnings were capped due to impairment provisions, especially in the company’s WA brick making and timber businesses.
The final dividend was raised to 32c from 30c, a share, making a total for the year of 48 cents, up from 45 cents in 2014-15.
Earnings before interest, tax, depreciation and amortisation rose to $102.8 million from $81.6 million with its EBITDA margin rising strongly to 13.7% from 11.6% the year before.
Residential building activity is at record levels, it said, fuelled by low interest rates and population growth along with rising housing prices, with Victoria in particular enjoying the "highest rate of intrastate migration in the country", it said.
“Current residential building activity in Australia is at the highest level on record, driven by strong population growth over the past five years, low interest rates and rising house prices,” directors said in yesterday’s ASX release.
"With approvals remaining elevated, commencements are likely to stay high for some time to come, particularly considering the significant weather related delays experienced in June, July and August.
"Although the overall housing market remains very strong, conditions vary significantly across the country. On the east coast, strong demand in Victoria is being fuelled by the highest rate of net interstate migration in the country.
"Meanwhile in New South Wales, housing activity is expected to stay robust for an extended period of time, due to a large undersupply of housing that developed during the 2000’s and remains significant even today.
"Recent analysis from BIS Shrapnel estimates that in New South Wales there is around 15 months of unsatisfied housing demand, even at the current record rate of building.
"These conditions are reflected in a full order book in all east coast divisions with builders in the major markets of Sydney and Melbourne reporting a long pipeline of work. In Austral Precast, work in hand extends over 9 months, fuelled by numerous large scale projects in the commercial and multi-residential high rise sector.
"The continued buoyancy of the housing market on the east coast is being offset by a cyclical decline in building activity in Western Australia, as employment prospects in this state deteriorate, leading to slowing population growth, high vacancy rates and reduced housing demand.
"Despite the current downturn, Western Australia has a strong and entrenched tradition of brick usage, with sales per capita being more than 3 times any other state in Australia. Therefore as the country’s largest brick maker this is a very attractive market to Brickworks.
“As such the company is making the necessary investment to upgrade facilities and rationalise manufacturing operations in that state,” directors added.
