MIDAS SHARE TIPS: Invest in bricks for houses with Ibstock

The UK housing market is in a bind. Homeowners see costs stagnating or falling. Potential consumers really feel that possession stays out of attain. Tenants face hovering rents. Housebuilders are ambivalent concerning the future. 

One level is evident, nonetheless – the nation wants extra houses. Some researchers say there’s a 4 million shortfall, which is able to take years to rectify. More houses imply extra bricks and Ibstock is the biggest brickmaker within the nation.

The agency’s roots return 199 years to the Leicestershire village of Ibstock. Then, brickmaking was a little bit of a facet hustle, the principle trade being coal mining. The colliery closed nearly a century in the past however brickmaking persevered and right this moment, Ibstock produces one in three bricks within the UK, from bespoke, handmade blocks for Lambeth Palace Library in London to on a regular basis materials for houses and buildings nationwide.

Yet Ibstock’s share value has languished, falling from £3.20 in 2020 to £1.44 right this moment, hit by considerations over cussed inflation, excessive rates of interest and a lacklustre housing market. Such worries are comprehensible however they’ve been overdone and Ibstock shares ought to rebound this yr and past.

A buying and selling replace final week was a blended bag. Chief government Joe Hudson admitted that gross sales fell 21 per cent final yr to round £405 million, jobs have been minimize, a manufacturing unit in Surrey has been closed and the housing market is more likely to stay subdued within the brief time period.

Solid future: Ibstock made particular bricks for a brand new library at Lambeth Palace in London

Big buyers took this badly, spurred on by an surprising pick-up in inflation final month and a raft of underwhelming updates from housebuilders in latest weeks. But Hudson had excellent news to report as nicely. The firm is in impolite monetary well being, he stated. Chunky value financial savings have been achieved, vital investments have been made and the medium-term outlook is sound.

A brand new manufacturing unit close to Walsall within the West Midlands will come on stream this yr, making the lowest-carbon bricks in Britain, a product that’s a lot in demand as housebuilders try to attain Government-mandated inexperienced targets.

An innovation arm goes nice weapons, constructing entire facades that may be slotted on to mid-rise blocks of flats and creating brick slips, that are secure and sturdy however far lighter than conventional merchandise.

There is a rising concrete enterprise, too, making flooring, staircases, tiles and different masonry.

Hudson spent many years within the cement and concrete area, becoming a member of Ibstock in 2018. The agency had been by way of a collection of householders again then, purchased by Irish constructing group CRH in 1999, offered to non-public fairness for £414 million in 2014 and listed on the inventory market a yr later in a deal valuing the enterprise at £770 million or £1.90 a share.

The valuation raised eyebrows on the time – and with good motive. But in recent times, the enterprise has been streamlined and investments have been made within the areas that matter. Today, Ibstock’s long-term prospects are promising.

Results for 2023 shall be unveiled in March, displaying that 21 per cent drop in gross sales, with earnings anticipated to fall by about 30 per cent to £73 million.

Further declines might be in retailer this yr however thereafter Ibstock’s fortunes are anticipated to get better at tempo, with Hudson concentrating on £600 million of revenues by 2026 and a considerable rebound in earnings.

Ibstock has historically paid an honest dividend and a payout of simply over 7p is forecast for 2023. That might dip this yr however it too ought to decide up from 2025.

Midas verdict: Housing markets have been robust however Hudson has taken quite a few measures to make sure his enterprise is in pole place when exercise recovers. Early indicators recommend that restoration is already starting, as mortgage charges fall and curiosity in new houses will increase. Ibstock has a wealthy heritage and a powerful future. At £1.44, the shares are a long-term purchase.

Traded on: Main market Ticker: IBST Contact: ibstock.co.uk or 0371 664 0391