Brickworks (ASX:BKW): Can’t escape the problems impacting the construction sector during the 2020s

Brickworks (ASX:BKW) boasts a long-term track record that many companies can only dream of. But this has not spared it from the issues plaguing the construction sector.

Introduction to Brickworks

Brickworks supplies building products to the Australian residential and commercial markets, especially bricks. It operates brands including Austral Bricks, Austral Masonry, Bristle Roofing and Austral Pre-Cast concrete walls. Brickworks is the largest company of its kind in Australia, with 30 brickmaking and masonry plants Down Under. It also has an investment segment which includes a 25%+ stake in listed investment company Washington H Soul Pattinson (ASX:SOL).

Brickworks has been listed since 1962 and has made stellar returns. A couple of years ago it claimed that an investment of $1,000 in the 1960s would be over $500,000 today – if you can find a better performance over that time span, let us hear about it. In its most recent AGM, it purports to have delivered Total Shareholder Returns of 11.7% per annum for 25 years, meaning a $1,000 investment in 1999 would be worth over $16,000.

Brickworks has maintained or increased dividends for 48 straight years and has lifted them for 11 years in a row. It has nearly thrice as many shareholders as five years ago – it must be doing something right. ESG investors shouldn’t fret – it has reduced scope 1 and 2 emissions by 56% since FY06 and hopes for another 15% reduction from 2022 baseline levels to 2030 levels. But it should also be observed that BKW’s clay bricks are energy efficient because they are able to absorb heat energy, store it and release it into the environment.

Two challenges

The company has two difficulties before it. The first is the managing the aftermath of the departure of Managing Director Lindsay Partridge. He was with the company for 39 years, 25 of which were as CEO. It is always tough when a company and a long-term CEO part ways after so long together. But new CEO Mark Ellenor is no stranger, having started 25 years ago as a graduate and worked his way up over time. Still, it’d be hard to argue he is as familiar as Lindsay Partridge was.

The second is the issues facing the construction sector. High costs, red tape and labour market worries are impacting the company. By labour market worries this includes both staff shortages, but also industrial action. For instance, at BKW’s Oakdale West Estates (a planned industrial hub in Sydney for Coles, Amazon and other entities), unionised electricians deliberately prevented the connection of power to the final four units and thus delayed practical completion.

While some ASX-listed stocks shy away from industry difficulties, Brickworks has not – its CEO predicting that the target of 1.2m new homes between 2024 and 2029 won’t just be failed to be met, but significantly undershot. Although interest rates were cut, this is only after 13 increases and is unlikely to be followed by follow-up cuts for some months now.

Moreover, even the US business isn’t faring easily. In 2018, it entered the market by buying the 4th largest brickmaker in Glen-Gary and made several follow up acquisitions. The North American business lost $3m in 1H25 and even paused production for 6-8 weeks at its eight plants to prevent an inventory build up. Who knows how Trump’s tariffs will impact it?

Better results?

In FY24, Brickworks made a $119m loss on a statutory basis. On an underlying basis, it made a $61m profit but this was down 88%. EBITDA was $157m, down 80%. This was due to property devaluations within its property trust, a small loss on the sale of its M7 Hub Estate, and a non-cash impairment in its Austral Masonry and Brickworks North American business units.

In 1H25, the company returned to positive territory in its bottom lines, although its underlying NPAT was only $76m and its statutory NPAT was only $21m. Total revenue was $516m, down 6%.

Nonetheless, green shoots included synergies from the consolidation of Austral Bricks and Austral Masonry into one operating division, as well as operational efficiencies from other measures such as cost controls and restructuring Bristile Roofing.

Analysts covering the company has a $29 target price, indicating 20% upside. And their analysts put the company at a P/E of 15.8x, a PEG of 0.3x and an EV/EBITDA of 10.9x for FY26. Not figures to snuff at.

Ultimately, the company has admitted that subdued demand is expected to persist for the next year or so. It expects conditions will improve significantly thereafter, and that is when we’d consider investing in Brickworks – not now.

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