Brickworks looks good value as the brick market consolidates: Despite being the key pillar behind an impressive dividend history, Brickworks' diversification...

Brickworks looks good value as the brick market consolidates: Despite being the key pillar behind an impressive dividend history, Brickworks' diversification has been a recent drag on investor sentiment. We value the company at over $14 yet it is trading around $12 where the free cash yield is 5.8%. The Building Products division offers direct exposure to the strong housing market nationally. While all key divisions are profitable, NSW in particular, and quarterly reports show strong pricing and volume uplift in the housing starts up-turn, BKW is yet to re-rate on the back of the brick market consolidation underway on the East Coast. We also see a high medium-term probability of BKW being involved in an EBIT recovering bricks consolidation in WA. If the housing starts pipeline stays on course, BKW can increase its dividends by 3cps pa from FY15 without straining the balance sheet. The property business is now a profitable REIT-styled offering, while the downside risk from its coal exposure (via SOL stake) looks priced in.