Brickworks and Soul Pattinson Earnings: Housing Construction Slowdown Set to Weigh Near-Term

We maintain our fair value estimates for Brickworks BKW and Washington H. Soul Pattinson, or WHSP, of AUD 28.00 per share and AUD 26.90 per share, respectively. At current prices, shares in Brickworks trade at a 14% discount to our fair value estimate while WHSP trades at a 19% premium.

No-moat WHSP’s fiscal 2023 adjusted net profit after tax of AUD 759 million fell 9% largely due to weaker performances from 43%-owned Brickworks and 30%-owned Aeris Resources. In a partial offset, 39%-owned New Hope had a strong year, with elevated thermal coal prices more than countering a 14% fall in volumes. However, as the global energy crisis unwinds, we expect the thermal coal price to fall to our midcycle forecast of AUD 100 per metric ton from a record realized price of AUD 347 per metric ton in fiscal 2023. That would see New Hope’s earnings decline at a 21% CAGR over our explicit forecast period.

WHSP declared a fully franked final dividend of AUD 0.53 per share, bringing total ordinary dividends for fiscal 2023 total to 0.87, a 21% increase from last year. We expect the dividend to grow at 11%, WHSP’s cost of equity, over our explicit forecast horizon. This would be a slowdown from the 19% CAGR achieved over the two years to fiscal 2023, but more closely aligns with the long-run 10% CAGR realized over the last two decades.

No-moat Brickworks’ performance was stronger than expected, with an adjusted net income of AUD 395 million beating our forecast of AUD 377 million, albeit down 32% on fiscal 2022. Combined EBIT for Australian and North American building products fell 63% to AUD 66 million, but 26% above our forecast due to stronger-than-expected operating margins in North America. Brickworks declared a fully-franked final dividend of AUD 0.42 per share, bringing the full year to AUD 0.65 per share, 2% higher than last year and broadly in line with our forecast.