With the UK government keen to solve the housing shortage and a growing impetus to boost spending on creaking infrastructure assets both at home and in the US, Ibstock (IBST) is well placed as the UK's largest brick producer, with a similar operation across the pond.
- Growing demand for bricks and concrete products
- Dominant market position
- Strong cash flow
- Vibrant US operation
- Highly vulnerable to economic downturn
- Net debt still relatively high
Ibstock is a relative newcomer to the market, having floated in October 2015. But the business itself has been around for a lot longer, and has around two-fifths of the UK brick market by volume. Back in August last year, sentiment was more fragile as a result of uncertainty generated by the referendum, and Ibstock also saw revenue dip at its largest clay products division as a result of destocking by builders' merchants and distributors. However, with destocking largely complete and the bearish sentiment about the immediate impact of Brexit overdone - the UK is the fastest-growing economy of all the G7 nations - the outlook has started to look a lot brighter.
In fact, despite earlier destocking, brick sales volumes last year were higher than in 2015, helped by sterling's post-Brexit decline making imported bricks less competitive. Demand has continued to be strong from the housebuilders, and should continue to increase as their output grows. To meet this demand Ibstock has been building a new clay brick factory in Leicestershire that will boost output by 13 per cent, and which is due to come on stream in the second half of this year. Demand has also been strong for concrete roof tiles, and last year saw the commissioning of a new facility in Leighton Buzzard that added 5 per cent to capacity and extended the tile product range. And after years during which the size of the brick mountain ruled out any hope of increasing prices, the tide seems to have turned in favour of suppliers. Price negotiations for 2017 have already been completed with major brick customers in line with Ibstock's expectations.
| IBSTOCK (IBST) | ||||
|---|---|---|---|---|
| ORD PRICE: | 186.5p | MARKET VALUE: | £758m | |
| TOUCH: | 186.2-186.5p | 12M HIGH: | 227p | LOW: 113p |
| FWD DIVIDEND YIELD: | 4.2% | FWD PE RATIO: | 11 | |
| NET ASSET VALUE: | 75p* | NET DEBT: | 53% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m)** | Earnings per share (p)** | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 317 | 14.4 | - | - |
| 2014 | 373 | 40.8 | - | - |
| 2015 | 413 | 84.0 | 16.5 | 4.4 |
| 2016** | 434 | 84.0 | 16.1 | 7.3 |
| 2017** | 463 | 90.5 | 17.4 | 7.8 |
| % change | +6 | +8 | +8 | +7 |
Normal market size: 5,000 Matched bargain trading Beta: 0.31 *Includes intangible assets of £125m, or 31p a share **Peel Hunt forecasts, adjusted PTP and EPS figures | ||||
Ibstock has already indicated that revenue for the year to December 2016 will have risen by around 5 per cent; not bad when taking into account the referendum and destocking. And there is another string in Ibstock's bow because it also has a thriving operation in the US called GlenGery, which is ideally placed to take advantage of the new president's infrastructure spending plans. Accounting for around a fifth of group revenue, this business is benefiting from sterling's significant fall against the US dollar, with 4 per cent growth in dollar revenue last year translating into 18 per cent growth in sterling terms.
Despite the outlay on new production facilities, strong cash generation has allowed Ibstock to reduce net debt, with Peel Hunt estimating year-end net debt of around £133m, equivalent to 1.3 times forecast cash profits, compared with 1.4 times for 2015. Early fears about the UK economy post-referendum have so far been wide of the mark, but Ibstock is still highly vulnerable to any downturn in economic activity.
