Ibstock upbeat despite building downturn

Better-than-expected is how both Ibstock (IBST) and analysts described the building materials manufacturer’s results for the six months to 30 June, despite a steep decline in revenue and profits. Although the slowdown in demand for building materials – as developers pause construction projects due to higher interest rates – had an impact, Ibstock outperformed forecasts through a “disciplined approach to pricing”. 

However, the company was keen to play down any suggestion that this surprise performance carried too much future significance. It said its full-year forecast is "unchanged", which is wise considering it depends on development picking up again before it can return to growth, which, in turn, depends on interest rates. Still, the increase in its dividend implies confidence that the recovery is not too far away.

While the market for development is beyond Ibstock’s control, it is nevertheless exploring ways it can be the market leader when construction recovers. The company said it was investing in “strategic growth projects” such as “the UK's first carbon neutral brick”. Ideas like that might sound abstract and ambitious, but the direction from government with housing secretary Michael Gove's rejection of M&S’s (MKS) redevelopment of its Marble Arch building is clear: net zero carbon construction will be a priority.

Investment is not cheap, though. Ibstock’s net debt has grown to 31 per cent – something investors should be wary of in an era of high interest rates. The stock is good value on a price/earnings ratio, but the path to growth is unclear in the short to medium term. Hold.

Last IC View: Hold, 106p, 8 Mar 2023