The New plan of action for Brickworks and Goodman Group

Australia’s leading provider of building products, Brickworks Limited (ASX: BKW) recently announced that its Joint Venture Property Trust has received approval from the NSW Department of Planning, Industry and Environment to commence development of their Oakdale West Industrial Estate in Kemps Creek, Sydney. The trust is providing Brickworks with a secure source of income and cash flow through rental income

The Joint Venture Industrial Property Trust, which is a 50/50% partnership between Brickworks and Goodman, has expanded significantly over the last 10 years and now has more than 1.7 billion in assets across western Sydney and Brisbane.

Today, Both Brickworks’ and Goodman Group’s stocks are up by over 2% on ASX as compared to previous day’s close. Let us now take a closer look at Brickworks and Goodman Group.

Brickworks Limited

Brickworks Limited (ASX: BKW) recently revealed its FY19 results, wherein, it reported a 17% growth in its revenue. Further, the company reported 12% growth in its Underlying EBITDA, which increased from $311 million in FY18 to $346 million in FY19.

The company’s underlying earnings were underpinned by the Property earnings. The Property business delivered record EBIT of $158 million, the seventh consecutive year of growth, mainly driven by a significant increase in the value of Brickworks’ industrial property portfolio, held within a 50/50 joint venture property trust with the Goodman Group.

Recently in August 2019, the company completed a bolt-on acquisition of Iowa based Sioux City Brick. Sioux City Brick has a leading market position in the Midwest region, and will further strengthen the company’s United States business.

Building Products Australia recorded an EBIT from continuing operations of $57 million in 2019, down by 27% on the prior year.

The Building Products North America contribution for the financial year 2019 incorporates around 8 months of operation and includes extended shutdown periods during the winter months. Sales revenue for this period was AU$121 million, and EBIT was AU$6 million. EBITDA for the period was just over AU$12 million.

The company has declared a final dividend of 38 cents per share, up 6% on pcp, taking the total FY19 dividend to 57 cents per share.

BKW Outlook:

• Whilst orders and sales are currently steady in most divisions, the company is expecting the first half of FY2020 to be soft, however, it expects the market to strengthen in the second half, based on the current level of home builder sales.
• The company is expecting that its transition to the wholesale gas market on 1 January 2020 will reduce costs and will provide some relief from rising energy cost.
• The company is also looking forward to commission the Southern Cross Cement facility in the coming month, which will provide a reliable, cost-effective source of cement for its Austral Masonry and Bristile Roofing businesses in Brisbane.
• The company’s acquisition of Sioux City Brick is expected to provide significant cost synergies.
• In Property business, the company believes that the developments at Oakdale South will drive growth in rent and asset value over the next few years.
• The company believes WHSP will continue to deliver a stable and growing stream of earnings and dividends over the long term.

Stock performance: At market close on 23 September 2019, BKW’s stock was trading at a price of $18.280, up by 2.123% intraday, with a market capitalisation of circa $2.68 billion. The stock has a 52 weeks high price of $19.330 and 52 weeks low price of $14.750 with an average volume of 218,711. The stock has a PE multiple of 17.320x with an annual dividend yield of 3.18%. In the past six months, BKW’s stock has provided a negative return of 1.21% as on 20 September 2019.

Goodman Group

Global integrated property group, Goodman Group (ASX: GMG) delivered operating profit of $942.3 million for FY19, up 11.4% on the prior year. Further, the group delivered operating earnings per share (EPS) of 51.6 cents, up 10.5% on FY18.

During the year, Goodman’s share of investment earnings from its cornerstone holdings in Partnerships increased by 9.8% to $298.1 million compared to the prior year, mainly driven by the rental income growth from existing properties and the completion of developments both during FY18 and FY19.

FY19 Highlights

• Net property income from the Partnership portfolios in FY19 was up 3.3% on a like for like basis compared to FY18 and occupancy at 30 June 2019 was 98%;
• Management earnings in FY19 of $469.7 million increased by 48.4% compared to the prior year and comprised 35% of total operating earnings;
• In FY19, development earnings were $509.2 million, an increase of 3.8% on the prior year and comprised 38% of total operating earnings;
• For FY19, operating expenses increased to $267.7 million from $249.4 million;
• The operating expenses related to remuneration costs increased to $191.9 million in FY19 from $180.7 million in FY18.

During the year, the company was able to maintain its balance sheet capacity with liquidity. At the end of FY19, the company had $2.7 billion of available liquidity with $1.6 billion in cash.

GMG Outlook:

• In FY2020, the company is expecting the business conditions to remain favourable. Goodman believes that it is strategically well placed given its financial and operational strength;
• In FY20, the Board is expecting to achieve an operating profit of $1,040.0 million, which equates to operating EPS of 56.3 cents, up 9% on FY19;
• The company is expecting its total AUM (Assets under Management) in FY20 to increase to more than $50 billion, resulting in growth in property investment and management earnings.

Stock performance: At market close on 23 September 2019, GMG’s stock was trading at a price of $14.120, up by 2.097% intraday, with a market capitalisation of circa $25.29 billion. The stock has a 52 weeks high price of $16.100 and 52 weeks low price of $9.850 with an average volume of 6,661,015. The stock has a PE multiple of 15.380x with an annual dividend yield of 2.17%.

In the past six months, GMG’s stock has provided a return of 4.06% as on 20 September 2019.

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