U.S. Housing Market's Coronavirus Resilience Is a Boon for Brickworks' North American Operations

Brickworks is a conglomerate consisting of building products manufacturing operations, industrial property management and a cross-holding in ASX-listed investment firm, Washington H. Soul Pattinson & Co, or WHSP. The building products strategy has been to reinforce its position as the lowest cost brick manufacturer, the segment’s largest division. To this end, Brickworks has upgraded the majority of its brick plants, and consolidated plant operations where appropriate. As a "cycle profit" business, we view Brickworks’s strategy to continuously take cost out of the business positively. However, execution has been underwhelming with only meagre improvement in ROICs in the most recent cycle, having peaked at 5.9% in fiscal 2018. Therefore, plant rationalisation and upgrades only modestly improved returns from that of the prior cyclical peak in fiscal 2010, where a segment ROIC of 4.2% was achieved. More must be done to improve segment profitability.