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Acquisition boost for Michelmersh

Buying Carlton will boost output at a time of strong demand
March 19, 2018

Michelmersh Brick (MBH) pushed underlying operating profit ahead by 42 per cent in the year to December 2017, but the prospects for the coming year look even more exciting. That’s goes some way to explaining why the shares jumped by nearly 8 per cent on these numbers.

IC TIP: Buy at 84p

The big transition this year will reflect the acquisition of Yorkshire-based brick manufacturer Carlton, with the combined entity now producing over 100m bricks a year. This comes at a time when demand for bricks in the UK continues to outpace capacity. The shortfall has led to a 28 per cent drop in brick stocks in the UK, and yet despite the excess demand and higher energy costs, prices remained flat. This is expected to change this year, which will help to boost margins, as will a full-year’s contribution from Carlton, which currently operates with gross margins of over 50 per cent against 35.6 per cent for the rest of the group.

Trading at the group’s Romsey plant experienced difficulties due to the relatively small size of the operation, returning a small operating loss for the year. However, steps taken to restructure the operation are expected to move the site into profit this year.

Analysts at Cenkos are forecasting adjusted pre-tax profit for the year to December 2018 of £8.8m and EPS of 8.2p.

MICHELMERSH BRICK (MBH)  
ORD PRICE:84pMARKET VALUE:£72m
TOUCH:83-85p12-MONTH HIGH:103pLOW: 56p
DIVIDEND YIELD:2.6%PE RATIO:32
NET ASSET VALUE:69p*NET DEBT:30%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201325.90.40.2nil
201428.52.62.70.5
201529.14.64.41
201630.14.64.42
201737.93.32.62.15
% change+26-27-40+8
Ex-div:31 May   
Payment:30 Jun   
*Including intangible assets of £24m or 28p a share