What is the most defensive share on the ASX? Could it be diversified business Brickworks Limited (ASX: BKW)?
What is Brickworks best known for?
As the name might suggest, Brickworks is best known for its market leading position as a brickmaker in Australia with Austral Bricks. Indeed, it's the leader in all major states, it also supplies into New Zealand as well as other export markets across Asia. It continues to invest heavily to make sure it has the lowest cost position in each market.
Brickworks is trying to continue its success in high rise and commercial construction with the roll-out of capital city design studios, product development and a focus on improving its relationships further with architects and engineers.
However, the company has a number of attractive building divisions. Austral Masonry is Australia's second largest masonry business and it's constructing a highly advanced masonry plant at Oakdale East for late 2020.
Bristle Roofing is Australia's second largest roof tile business. Brickworks also has Austral Precast and it has a 33% stake in Southern Cross Cement.
Brickworks has also recently acquired a few brickmakers in the USA which has resulted in Brickworks quickly becoming a market leader in the north east in the US whilst it tries to improve margins at those businesses.
Building products are great, but how are they defensive? We've seen over the past couple of years that the construction industry can be painfully affected.
Property Trust
In 2008 Brickworks established a property division to turn its excess land into properties that can be leased out. Brickworks owns 50% of an industrial property trust and the other half is owned by Goodman Group (ASX: GMG) which manages the properties.
Since inception, the net asset value of Brickworks' stake of the property trust has increased at 18% per annum whilst also paying a growing net rental stream of cash to Brickworks. The 50% stake was worth $633 million at the end of FY19.
The development land at Oakdale in New South Wales will provide further growth for up to a decade.
In September Brickworks announced that the trust had secured development approval for 89 hectares of land at Oakdale West.
This focus on industrial property is clever because many modern companies are looking for property assets that are close to end-customers and key transport infrastructure which are important for e-commerce. Within these warehouses is integral technology such as full automation and robots, high bay warehousing and order picking & tracking technology.
The rental income is contracted to grow with the tenants. It's a great asset to have.
Investments
Brickworks owns a 39.4% stake of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), the investment conglomerate which has been operating since the early 1900s.
Soul Patts is invested across a number of different industries including telecommunications, resources, financial services, pharmaceutical companies, property and so on.
In the 15 years to the end of Brickworks' FY19 result, the Soul Patts investment delivered total shareholder returns of 11.6% per annum.
Soul Patts is known for being disciplined but also opportunistic with its investments. Soul Patts also owns a large investment in Brickworks.
Brickworks describes Soul Patts as a stable and trusted business partner to Brickworks and management remain confident that it will continue to add value and deliver a growing stream of earnings and dividends over the long-term.
Foolish takeaway
When you combine the three different divisions of building products, property and investments, Brickworks has a very strong business. Each division has a different earnings profile, different growth strategies and different earnings streams.
The asset value of the Property and Investment divisions back up the market capitalisation of Brickworks alone, so the building products division is an excellent, large bonus.
It has grown or maintained its dividend every year since 1976, so it's a great idea for defensive dividends too. It currently has a grossed-up dividend yield of 4%.
