Key Takeaways

Anticipated growth in property rental income and completion of projects will boost revenue and net margins through new leasing.
Strategic modernization in North America and increasing dividends enhance revenue growth and EPS with market improvements and stable earnings.
Challenging market conditions and increased debt pressure financial flexibility, impacting future earnings, net margins, liquidity, and dividend potential.

Catalysts

About Brickworks

Engages in the manufacture, sale, and distribution of building products for the residential and commercial markets in Australia and North America.What are the underlying business or industry changes driving this perspective?

Brickworks anticipates growth in property rental income driven by rent reversion and a robust development pipeline. This is likely to positively impact revenue and net margins in the future due to increased profit from rentals and property development activities.
The completion of significant construction projects, such as Oakdale West and Oakdale East 2, is set to contribute substantial development profits and new rental income in 2025 and 2026. This will improve revenue and potentially elevate net earnings through new leasing activities.
Brickworks' strategic rationalization and modernization of its North America operations position the company to harness market improvements expected post-2026, which should enhance revenue growth and margin expansion once the construction cycle rebounds.
The Property Trust holds potential for rental income increases as existing lease facilities reach market rents, further strengthened by high demand in the industrial sector driven by e-commerce. This would boost revenue and operating margins as properties are progressively re-leased at higher market rates.
Increasing dividends and distributions from investments, notably from Soul Patts, offer a growing and stable earnings stream, improving overall earnings per share (EPS) as dividends continue to grow over time.

Brickworks Earnings and Revenue Growth

Brickworks Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Brickworks's revenue will grow by 5.5% annually over the next 3 years.
Analysts assume that profit margins will increase from -4.2% today to 20.5% in 3 years time.
Analysts expect earnings to reach A$254.5 million (and earnings per share of A$1.68) by about September 2028, up from A$-44.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$164 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.9x on those 2028 earnings, up from -117.6x today. This future PE is lower than the current PE for the AU Basic Materials industry at 27.6x.
Analysts expect the number of shares outstanding to grow by 0.18% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.45%, as per the Simply Wall St company report.

Brickworks Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Challenging market conditions in Building Products, especially in North America, have led to decreased sales and significant EBITDA losses, which could negatively impact future earnings as the market struggles to recover.
Noncash impairment charges in the North American business unit reflect difficulties in the market, impacting the carrying value of assets and potentially leading to more financial write-downs, which affect net profit after tax.
The company's net debt has increased by $39 million, and while gearing remains manageable, the higher debt levels could pressure financial flexibility, potentially affecting net margins and liquidity.
Subdued building activity in key markets and ongoing operational issues, such as temporary plant closures in the U.S. due to lower demand, could delay recovery and realization of benefits from past investments, impacting revenue and EBITDA margins.
The reduction in investment earnings, with underlying contributions from investments down 4%, reflects volatility in investment returns, which could affect overall profitability and dividend distribution.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of A$32.1 for Brickworks based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$34.9, and the most bearish reporting a price target of just A$26.5.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.2 billion, earnings will come to A$254.5 million, and it would be trading on a PE ratio of 23.9x, assuming you use a discount rate of 7.5%.
Given the current share price of A$34.29, the analyst price target of A$32.1 is 6.8% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

Oakdale West And East Projects Will Unlock Rental Value

Shared on25 Sep 25Fair value Decreased 2.83%

Shared on25 Sep 25
Fair value Decreased 2.83%