Illustration: Janet Briggs Photo: richardhughes@fairfaxmedia.com.a What's new Since the release of BWP Trust's interim result on February 12, impressive growth figures have continued to come through from its key tenant, Bunnings Warehouse, showing the sheer strength of the hardware chain and its vice-like grip on the lucrative Australian home improvement industry. To begin with, Bunnings Warehouse unveiled a 7 per cent rise in its earnings before interest and tax for the December half of 2012. All operating and financial metrics improved, except return on capital (ROC), which fell slightly. However, even at this level, Bunnings Warehouse's ROC remains by far the highest of all businesses in Wesfarmers' stable. This was further backed up in the March quarter 2013 sales result, which saw the hardware chain operator posting total sales growth of almost 7 per cent, or 4 per cent on a like-for-like basis. Outlook These performances clearly show that Bunnings Warehouse is on track to continue its stellar record of earnings growth achieved over the past decade. They also demonstrate that it is a tenant that is highly unlikely to skip on its rent obligations to BWP Trust, particularly given the importance it places on warehouse site locations. That is critical given that BWP Trust still derives 93 per cent of its income from Bunnings Warehouse, which occupies 68 of the trust's 72 operating properties. Ordinarily, such a customer concentration poses an investment risk. But in BWP Trust's case, we believe having its fortune tied to Bunnings Warehouse is an advantage, given the latter's resilient success and dominant positioning in the still growing $36 billion Australian home improvement market. More importantly, with Bunnings Warehouse planning to roll out about 20 new stores each year for the foreseeable future, there are more growth opportunities on the horizon for BWP Trust. It must also be pointed out that BWP Trust can pick and choose from these opportunities, as it is not legally bound to buy any properties from Bunnings Warehouse. Furthermore, Bunnings Warehouse's parent, Wesfarmers, owns 24 per cent of BWP Trust, thereby neatly aligning all the parties' interests. Price BWP Trust's stock has been a solid performer on the Australian bourse, rising 16 per cent and 30 per cent over the past six and 12 months, respectively. While this has been driven, in small part, by investors' insatiable appetite for yield, we believe the quality of BWP Trust's property portfolio and its conservative modus operandi have also contributed. Worth buying? We remain attracted to BWP Trust, viewing it as a best-in-breed real estate investment trust in the Australian market, with a strong distribution track record, conservative gearing, an enviable portfolio of industrial properties, tenanted by one of the most resilient bulky-goods retailers in the country. However, the stock is currently trading at 17.5 times consensus fiscal 2013 earnings estimates and commands a 32 per cent premium to its NTA, albeit still yielding around 6 per cent. Consequently, we believe it is prudent for those without exposure to wait for a pull back in the stock price before buying into BWP Trust. Brian Han is Senior Research Analyst at Fat Prophets sharemarket research. To receive a recent Fat Prophets Report, call 1300 881 177 or email info@fatprophets.com.au.