Brickmaker Ibstock is solid if the jab succeeds
IBSTOCK is a leading brickmaker, and a key supplier to the house building and construction sectors.
The closure of building sites in April and May saw its brick sales slow to a trickle. Exposure to infrastructure and repair and maintenance markets meant concrete performed better but the picture was still pretty ugly.
However, recently building sites have been able to stay open. Demand has largely recovered, and solid clay bricks and concrete sales are ahead of 2019 volumes. Ibstock now expects underlying cash profits to be “modestly above” the £50million previously forecast.
While the pace of house building could slow again in the months to come, the group should continue to recover along with the wider economy if the vaccine rollout goes smoothly.
Earlier in the crisis, Ibstock was focused on conserving cash through lower costs. The group closed or mothballed three factories, cut capital expenditure and around 15 per cent of staff were affected by “restructuring”. That will have reduced capacity, so it’s important the group retains the ability to scale up quickly to meet future demand.
Despite these efforts, net debt rose substantially earlier in the year. However the recovery, cost control measures and cancelled dividend have since improved the picture. Net debt is at £70million, down from £103million in June and below its pre-pandemic level.
We’re impressed by Ibstock so far. The group should also benefit if the Government spends big on infrastructure to aid our recovery. And the group is relatively insensitive to house prices – as long as properties are getting built Ibstock gets paid.
Nonetheless, cyclicals like Ibstock have their fortunes tied to the wider economy. If the vaccines are effective and we recover smoothly Ibstock should do well. If not, it will inevitably struggle.
The company is not paying a dividend but we wouldn’t be surprised to see it reinstated if the recovery continues and the balance sheet is further strengthened.
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