About: Brickworks Limited is a diversified group of companies split into three main business groups being Building Products (engaged in manufacturing and distribution of clay and concrete product), Land & Development (development of surplus building products land and interests in property trusts), and Investments (42.7% share of Washington H. Soul Pattinson & Company (WHSP). Brickworks currently operates in Australia and New Zealand. WHSP and Brickworks have a cross-holding structure whereby Brickworks owns 42.7% of WHSP and WHSP owns 44.0% of Brickworks.

Why it is in the portfolio: Brickworks provides the portfolio with exposure to a diversified conglomerate which is exposed to the building industry in Australia and New Zealand. It also provides, via its investment in WHSP, exposure to a diverse range of businesses across telecommunications, coal, retail, property and a range of other listed and unlisted investments.

Fundamentals: Brickworks trades on reasonably attractive fundamentals with a price-to-earnings ratio of around 14x and a fully franked dividend yield of around 3% with around a 40-50% payout ratio. Brickworks also has a low level of debt and trades on a price-to-book ratio of around 1.1x. DPS is expected to grow at around 3% forward earnings.

What could go wrong: The most obvious thing that could impact Brickworks is a severe downturn in construction activity particularly within the housing market. A large part of Brickworks valuation is also tied to the performance of WHSP, so the performance of the underlying investments within WHSP may also factor into the outcomes for Brickworks stock price. Brickworks also has some negative exposure to energy prices, which can significantly impact the companies earnings prospects.