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Ibstock invests to serve sector shortfall

Capex to increase in second half to hit £50mn
July 28, 2022
  • Expected cost of new Atlas factory rises to £75mn
  • Company says project will generate annual cash profit of £18mn

Brick makers have avoided most of the gloom enveloping the building products sector for a simple reason – the market is undersupplied.

Industry brick inventories “remain at historically low levels”, with current shortages supported by imports, Ibstock (IBST) chief executive Joe Hudson said.

The company, which grew operating profit by 25 per cent to £50.8mn for the half year, recently completed capital enhancement projects at three sites in its clay business which grew capacity by 5 per cent but it has several other big-ticket projects on the go.

These include a £50mn automated brick slips factory in West Yorkshire due to come on stream next year and a new factory at its Atlas site near Walsall which it says will make the UK’s first net-zero carbon bricks.

The build cost of the latter has increased by £15mn to £75mn, but the company says it will deliver a “significantly higher” adjusted cash profit of £18mn, a 50 per cent uplift on its initial estimate. 

`Capital expenditure rose during the six months to £18.8mn (from £10.1mn in the same period last year) and is expected to top £50mn by the end of this year.

Ibstock has the money to invest, though. Stronger cash flow generation allowed it to cut net debt further to £35.7mn by the end of June, from £38.9mn in December. It also embarked on a £30mn share buyback programme in May, completing £6mn of this by the end of June. This helped to push earnings per share up to 10p, from 3.2p a year earlier. 

Broker Peel Hunt thinks Ibstock's full-year EPS will come in at 18.3p. The shares currently trade at 11 times this level, which isn't too pricey but given the execution risks around ongoing projects we maintain our hold stance.

Last IC View: Hold, 163p, 9 Mar 2022

IBSTOCK (IBST)    
ORD PRICE:198.1pMARKET VALUE:£801mn
TOUCH:197.9-198.3p12-MONTH HIGH:242pLOW: 150p
DIVIDEND YIELD:4.2%PE RATIO:13
NET ASSET VALUE:108p*NET DEBT:14%
Half-year to 30 JunTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
202120238.82.702.50
202225951.210.03.30
% change+28+32+270+32
Ex-div:18 Aug   
Payment:13 Sep   
*Includes intangible assets of £91mn, or 23p a share