We maintain our fair value estimates for Brickworks and Soul Patts of AUD 32 per share and AUD 34 per share, respectively. At current prices, shares in Brickworks trade at an 11% discount to our fair value estimate, while Soul Patts trades at a 2% premium.
State and federal government policy to increase supply of Australian housing over the coming years supports near-term demand for brick volumes.
Bears
Brick use is expected to decline due to a greater range of alternative building materials, smaller house sizes, and a change in design preferences and building types.
Brickworks is a conglomerate consisting of brickmaking operations, industrial property management, and a cross-shareholding in investment firm, Soul Patts (ASX: SOL). Brickworks’ operating business manufactures brick products for the Australian and North American markets. However, most most of Brickwork's valuation is derived from its property and investment segments. The property segment principally develops warehouses on industrial land, with joint venture partner narrow-moat Goodman Group. The investment segment represents a cross-shareholding in Soul Patts, an investment firm with a portfolio encompassing diversified investments, including large holdings in no-moat coal miner New Hope and narrow-moat TPG Telecom.