Brickability is building an investable company

Not content with depending so heavily on the niche UK brick market, Brickability (BRCK) has bolted new revenue streams onto its building materials business. In October, it bought Topek and, by doing so, "significantly increased [its] presence in the cladding remediation market", which has grown exponentially since the Grenfell fire tragedy. Despite the sheer number of buildings that urgently need recladding, the pace of fixing the issue has been glacial, which means this market is likely to be around for a while.

The acquisition could turn around a mixed performance for the company. Like-for-like revenue slumped 14.4 per cent in its results for the six months to 30 September, but the building materials supplier was still able to increase its dividend on the back of rising profits based on cost control. 

The company pinned the sales slowdown on a sluggish housing market. Brickability said revenue will grow again when house sales and housebuilding recover. This is no doubt true, but the cyclical nature of housebuilding also explains the move into the non-cyclical world of cladding remediation.

Considering the inevitable housing market recovery and Brickability's increasing number of other revenue streams, the company's price of five times current earnings looks very cheap. And though most of its assets are intangible, it does not justify BRCK's shares trading at a discount to net asset value either. The dividend yield is also attractive, and shareholder payouts have increased every year since listing in 2019.

House broker Cenkos said earlier this year that the shares “remain fundamentally undervalued”, and it is hard to disagree with that. Buy.

Last IC view: Hold, 56p, 17 Jul 2023