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Ibstock could get a boost from re-cladding market

The brickmaker is back in profit, though uncertainties over energy markets present a problem
Ibstock could get a boost from re-cladding market
  • Profits are adrift of pre-pandemic levels
  • Construction demand could falter due to high energy costs

Ibstock (IBST) is back in the black, moving to an operating profit of £69.9mn, after building activity rumbled back into life after the worst of the virus disruption. The brick manufacturer’s annual results trumped management expectations, and the market reacted positively.

Unfortunately, the share price is still around a third below where it was this time last year. Profits have yet to recover to pre-pandemic levels, though overall sales are back in line with 2019. And while an adjusted cash margin of 25 per cent compares favourably with the prior year, it is 4.7 percentage points down on the two-year comparator. Management is targeting a rate of 28 per cent over the medium-term.

Ibstock is ploughing £60mn over the next two years to redevelop its wire-cut clay brick facilities in the West Midlands, including the completion of a new factory to produce the UK’s first net-zero carbon bricks – nowadays, you can’t make bricks without a straw man, apparently.

As part of the search for ESG-compliant growth, the company has launched Ibstock Futures, a new venture targeting the new build and re-cladding markets (there should be no shortage of demand for the latter), and it has further broadened its competencies by acquiring glass reinforced concrete (GRC) panel technology.

The shares are changing hands at a lowly 10 times consensus earnings, with a forecast dividend yield in the region of 5 per cent. But the anticipated margin build is set against cost inflation and supply chain pressure, the extent of which is difficult to gauge due to the febrile state of global energy markets. Ibstock said that the immediate risk in this area is adequately covered with around 85 per cent of energy requirements secured through 2022, though, again, it’s hard to assess the likely duration of the ongoing energy crisis. Uncertainties abound – back to hold.

Last IC view: Buy, 152p, 10 Sep 2020

IBSTOCK (IBST)   
ORD PRICE:163pMARKET VALUE:£ 666mn
TOUCH:162-163p12-MONTH HIGH:247pLOW: 150p
DIVIDEND YIELD:4.6%PE RATIO:21
NET ASSET VALUE:103p*NET DEBT:16%
Year to 31 DecTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201736377.716.09.10
201839192.518.89.50
201940982.016.39.70
2020316-23.9-6.801.60
202140964.97.807.50
% change+29--+369
Ex-div:14 Apr   
Payment:13 May   
* Includes intangible assets of £94.6m, or 23p a share.