The last time that I wrote positively about Ibstock (IBST) - the UK’s largest brick company - was here back in April. Back then I concluded that ‘assuming further recovery in key sales/profit metrics to closer to the 2019 levels as 2021 progresses, fair value is still above 250 pence’. There were too many companies reporting updates earlier this month, so I did not get the opportunity to write on Ibstock's first half numbers where I liked (again) its progress.
It was certainly good to read about ‘strong performance...Underlying market fundamentals remained robust, backed by demand for new housing...£60 million investment in the redevelopment of our clay brick facilities…(and) now expect adjusted EBITDA to be modestly ahead of previous expectations’. On a revenue basis the company is almost back to H1 2019 levels, which is clearly good. With regard to its concrete business, I observed unsurprising general growth due to housing sector and industry demand. Whilst certainly elements of the housing market are close to madness, underlying population growth means there is a need for more properties. Meanwhile the clay business is certainly getting more efficient based on the turnaround plan announced just over a year ago. Check in a low debt level and scope for a 5% free cash flow yield, you can see why I regard the stock as good value.
But there are other reasons why the Ibstock story starts to get more exciting. It is certainly true to say that it has a continuing innovation focus with new/more efficient clay/concreate capabilities along with a boosted customer/digital backdrop. And then there is its net zero brick factory angle due to launch in 2023, which institutional ESG shareholders are undoubtedly going to get excited about.
And then we have had the Sunday press, where one business writer observes that the building market is ‘enjoying a healthy patch after its various pauses during last year’s lockdowns’. However the world of bricks and concrete is a bit more specific and difficult to enter, especially as it tends to be more expensive to import than those produced in the UK. So whilst I don’t really like Sunday paper stock tips, this one does makes a good point when it observes that ‘shares in Forterra (FORT), a rival brickmaker and arguably the most similar stock market business, have gained 30% this year...Ibstock should do the same’. For me, I think it is based a bit more on some of the broader issues I have mentioned above but I agree with the conclusion. I continue to own the shares and consider them a BUY.
Filed under: Ibstock, Remote Monitored Systems, Nanosynth, Chill Brands, Mediazest, Wood Group
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