If anyone has been following the storey of the Brick Group Income Fund (BRK.UN) then you should be familiar with the drop in value during the height of the recession from the $8 mark back at in mid 2008 to the $0.60 mark in July 2009. This rough ride has taken the company from a peak in the volume of home sales, through a huge contraction in housing sales volume followed by a massive recovery.
My premise is that the BRK.UN is married to the cyclical nature of the Residential Real Estate markets in Canada. My thought has been that people tend to buy new furniture when they move homes and junk the old stuff. This seems to reflect very nicely in the chart of BRK.UN as the company went through a rather tough spell as sales volume dried up during Autumn 2008 and then the liquidation crisis hit the Brick hard. Without furniture sales to cover cash flows on inventory profitability at the Brick and United Furniture Warehouse dried up. A lack of loans from the banks further deteriorated the company’s ability to operate.
Take a look at the chart for BRK.UN and try to remember the slow down in the real estate market.
Further, look at the next chart of BRK.UN showing the recovery. Sure there is a slight lag compared to Real Estate Sales, but it does mirror pretty closely.
So where is the Brick Income Fund Going from here? I think you need to look at where Residential Real Estate Sales are heading. If you ask some of the more prominent Real Estate Analysts like Cameron Muir from BCREA than you can expect further high sales volumes that may tapper off. The sad thing about any analysts predictions are that they are always qualified by if this or if that so they are almost useless.
My opinion…we are in a particularly sticky situation with low interest rates and people maxing out with 5% down and 35 year amortizations. I remain bullish in the near term on BRK.UN due to the high daily sales volume for the fund, but each day the bearish factors seem to be calling to me. I plan to hold for now, but if the trend breaks I may unload.
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ugh 5% down and 35 year amortization periods. I can’t help but cringe at that. I think the Flaherty is putting and end to that, no?
Why do you say” The Brick Group Income Fund makes solid footing” and at the same time “each day the bearish factors seem to be calling to you”.
I must say your current post seems a lot pessimistic as compared to your previous post on 18-Aug-2009 which drove the price of the Brick units up from 80 cents to 1.43 cents in a couple of days.
http://investingincanada.info/2009/08/income-trust-pick-brick-income-fund.html
I see that you have linked the performance of the units to the housing market and have in your current post ignored the turnaround efforts of the new CEO Bill Gregson whose track record you mentioned in the previous post.
Does this mean you no longer feel that the Brick is a good turnaround candidate.
As for a drop in housing sales once the interest rates start rising would that not also effect Leons Furniture which is the Bricks main competition. Leons has a net income of 61 cents per share.
Do you think Bill Gregson could ever turnaround the Brick enough to match that.
I do believe the new CEO Bill Gregson is doing a great job with The Brick. My thoughts on this company have just started to level out. Initially, I was very bullish on a recovery in the fund. If the economic recovery continues than this fund has the potential to double easily and more into a full recovery; however, my thoughts on an V shaped economic recovery are skeptical. I agree with Dennis Gartman, The Gartman Letter, that there seems to be more and more evidence that the market needs to pull back before we go further. Unemployment remains high, inflation remains a concern, and interest rates are likely to rise in the next few months. As a result, if I see home resales begin to drop off I will be cutting my position in BRK.UN. Until that time I am holding, but not picking up more.
lol, nevermind, I see your opinion on BRK now! Thanks!