Stocktake: Building Blocks In Place For Brickworks
Sun Herald
Sunday June 15, 2003
What's driving Brickworks's share price?
John Harbot , equities analyst, Lodge Partners stockbrokers: The company is delivering record profits, is making good progress on unlocking the value of surplus land holdings on the balance sheet and at the same time has a takeover offer on the table for WA brickmaker Bristile .
Amanda Miller, ABN AMRO Morgans senior analyst: Earlier this year Brickworks did announce a very solid improvement in profits (up 25 per cent). More recently, it gained approval to develop part of the group's property portfolio.
What's the best thing going for it?
Harbot: Management has consistently reinvested in their factories and products, putting the company at the bottom of the cost curve and making it competitive.
Miller: BKW is an under-valued asset situation in our view. Announcements such as those more recently highlight the potential to unlock significant value over time.
What are the big risks?
Harbot: The brick operations are cyclical and during downturns pricing can sometimes get irrational as the players seek to hold volume. However, this risk has reduced considerably in the last few years, with the major brick makers having taken capacity out of the market.
Miller: Probably the biggest risk in the short-to-medium term is a sharp downturn in housing construction activity. This appears unlikely, however.
What is the three-year outlook?
Harbot: We expect that Brickworks will acquire Bristile, either this time or next, and will become the largest and most efficient brick and floor tile maker in the country.
Miller: Indications are that there is some softening in housing construction occurring. Offsetting this, however, property development profits are expected to commence we expect increased group profits over the next three years.
What's the expected share price in 12 months and is it a buy or sell?
Harbot: If the revised takeover offer is successful, we expect the price could move up to $8. Around $7 we think the stock is a buy.
Miller: We have a buy recommendation on the stock, and believe fair value to be above $8.
© 2003 Sun Herald
