Ibstock: Restructuring charges weigh on profits

There’s no disguising the fact that last year was an awful one for brick maker Ibstock (IBST) which, like competitor Forterra (FORT), was in the unfortunate position of having substantially increased capacity at a time when the market least needed it. 

The 21 per cent decline in its top line matched the broader decline in the market given the fall-off in housebuilding activity, with the much more significant drop in pre-tax profit due in large part to the addition of £31mn of restructuring charges, as it permanently closed two brick factories and cut headcount by more than 15 per cent. 

Capex of £65.7mn (up from £58.4mn in the previous year) as it completed works at its Atlas and Aldridge plants in the West Midlands, and higher spending on working capital as it built up inventories contributed to a free cash outflow of £16mn, and net debt more than doubled to £101mn.

Fixed costs are likely to remain elevated this year as, although demand is expected remain “subdued” until at least the second half, the company is keen to “build back quickly” once a recovery does take place.

More efficient factories and a leaner cost base should translate into significant operational leverage benefits once volumes pick up and a 30 per cent recovery in its share price since it hit a seven-year low last October suggests some investors are already positioned to take advantage. But the recovery looks priced in before it’s even got under way. The shares are currently priced at 16 times FactSet forecast earnings, only dropping to their five-year average of 13 times for next year. We remain on the sidelines for now. Hold.

Last IC view: Hold, 157p, 03 Aug 2023