As brick prices finally begin to rise following half a decade of depressed demand and oversupply, Michelmersh Brick (MBH) has begun to benefit from its massive operational gearing (the process whereby a small rise in turnover results in a far larger rise in profits). Given the brick industry's high barriers to entry, the party should continue as long as the house building sector keeps booming.
- Real pricing power returns
- New facilities to boost output
- Significant operational gearing
- Minimal debt
- Dividend still modest
- Reliance on demand for bricks
The impact of Michelmersh's operational gearing was evident in 2014's results when the benefits of a 13.5 per cent rise in brick prices - the first rise in six years - caused profits to balloon, the mechanics of which can be seen in our table below. The significance of rising prices was such that by the time 2014 results were announced broker Cenkos had upgraded its forecasts for the year by 270 per cent.