The building materials group, Brickworks Ltd (ASX: BKW) expects better than anticipated earnings for the current financial year because of buoyancy in activity particularly in apartment building and a better contribution by its property development arm. In addition, some planned developments are being put forward, which should provide a further boost to earnings in the next financial year. In its recent release of the results for the half-year to January, the company indicated that second-half earnings will be comparable with the first half in which it has reported an underlying net profit of about $ 75 million and an EPS of 50.5 cents per share. Managing director Lindsay Partridge pointed to the robust East Coast demand for building products and the continuing momentum within the industry and said that the group is on track to deliver a significantly improved result for the half-year.
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NPAT and EPS (Source: Company Reports)
The trading update has not resulted in changes in the outlook of the present indications and this suggests that the property arm is performing slightly better than expected but most of the investor focus continues to be on the building materials arm. An analyst suggests that the group is leveraged to the housing cycle and at some point, there could be a decline as the group gets closer to the peak. However, when releasing the half-year results, the group said that the housing industry in the East coast was already operating at capacity and provided limited prospects for more growth. The group has restrained itself in production capacity expansion in building materials arm despite the current upswing because it has continued to focus on lifting prices wherever possible to increase margins and this has been an ongoing effort since the global financial crisis.
The trading update highlighted the property development activities, in particular, in western Sydney. Mr Partridge said that the level of activity in western Sydney has continued to drive demand at Oakdale Estates and enhanced earnings from the property trust. Earnings before interest and tax from the property group in the current year are now expected to be slightly higher than the previous year. It also highlighted about the additional pre-commitments at the Oakdale Central development situated west of Sydney and plans now going forward for a new warehouse development to be completed early next year. Late in 2017, the group expects to generate around $ 90 million in income from sale of property at Oakdale South nearby and investors are now optimistic about the new data. The income will rise from the sale of 27.9 hectares of land through the property trust, which includes the sale of property to Sigma Pharmaceuticals and Toyota Australia.
Due to the robust demand, the group said that it would bring forward the development of its land holdings on Bakers Lane and Kemps Creek ("Oakdale West"), to provide additional 90 hectares of developable land to be ready for occupation by new tenants by mid to late 2018 while some experts believe that the market is overlooking the inherent value of the land. Despite the above trading update, BKW has dropped 4.5% in the last one month (as at June 10, 2016).
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