LON:IBST

28th Oct '20 by Berksbee

8 comments 571 reads

Little news for my holdings to day so I thought I'd have a look at the FTSE 250 Heatmap and see what's going down.

I noticed Ibstock the brick maker is down ~9% which peaked my interest an wondered why.

I've always had a passing interest in LON:IBST as its highly cyclical and thought there must be some really nasty news hidden away. Well I don't seem able to find it.

forecast annual core earnings of £50m after reporting better-than-expected third quarter trade - not great but pretty good in the circumstances
revenue in the three months to September 30 was at 88% of 2019
current trading performance is ahead of our previous internal base case for the full year
we benefitted from improving volumes to our housebuilding customers
reduction in net debt by the end of the year, compared to the £103m

Am I missing something? My builder mate has been saying for months, if you have the space, buy building materials as they getting scarce. His view is the suppliers will be able to price at a premium.

Bricks are not a cheap or quick item to import, neither are they easy to produce locally as kilns need to be fired up. I.e. there is a moat.

The Stocko value score is pretty awful but this is starting to look tempting.

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Zipmanpeter

8th Nov '20

I hold a large chunk of Ibstock and feel the same way - I would be buying more but have done badly on following concentrated conviction buys in P12M (Non-standard Finance (LON:NSF) anyone!)

Long term the industry is highly concentrated - the top 3 have >80% market share; has quite big barriers to entry - tough to get new sites up and running and big capital to do so; and the UK is in structural deficit of bricks with imports >10%....which cant make much sense on such a heavy bulky product. My notes say the Brickability (agent seller of bricks) IPO said Ibstock have 40% market share well ahead of Fronterra (24%) and Wienburger (20%).

I see no major sign that brick is losing out as a building material ; indeed automation is coming in which will take off the issue of too few locals willing to do the physical hard graft of bricklaying and ultimately will reduce the cost per brick laid. Govt is committed to building of both houses and infrastructure and this has wide political support. Even a housing price collapse is unlikely to dent construction rates much; it is the excess profit housebuilders earn which is the political concern. On the concrete side I'd expect demand to hold up OK as again I expect infrastructure spend to come through in next 12-18months to 'get the country moving'. No sign of this division having really gone off the rails (no pun intended).

There also appear few 'nasties' in pension, debts or wild mgt decisions. Indeed in the recent trading announcement, mgt spoke of derisking the pension via a partial buy in by a specialist 3rd party. In terms of the investment programme, they have largely completed what they promised in the IPO and taken the sensible decision recently to pause major new factory construction / close smaller operations with less good economics/ environmental scores and focus on smaller incremental improvements.

They also allude to expecting to be able to delever quickly next year to deliver shareholder returns although whether that includes dividends is less clear. On a 2 year basis, I think Ibstock looks really good.

Alex Meals

Hi. I think Ibstock will fall even deeper in next months. No building will happen soon because of second wave, so it may go even deeper. Right?

But then will happen long term growth.

Berksbee

16th Nov '20

Hi Peter,

Useful. Thanks. I'm already sitting on a +10%+ gain having bought on the day I wrote this.

Around me the building sites are open.

20th Nov '20

Worth also looking at the recent LON:BRCK post. BRCK are essentially brick distributors and are talking about a V shaped recovery in the market. BRCK also looks like a bargain at first glance. LON:IBST now up 25% since I first posted and if their pre-March price is anything to go by there's more to come.

30th Dec '20

Ibstock (LON:IBST) still looking good to me at 208p (SR20 Q54 V18 M27). Strong Pound will be helping imports (and so Brickability (LON:BRCK) ) and no doubt there issome Wave 2 COVID disruption although Jan-Mar is normally slow in construction. But next year there will IMHO be a minor building boom as govt can finally start to ratchet up spending/approvals plus catch up construction from 2020 allied to lots of home improvements to support WFH.

I am surprised Stockopedia revenue forecasts are for sales below 2019 level. However, on whatever sales there are in 2021, cost cutting from 2020 should give better margins. The UK triopoly should not choose to compete on price.

Since debt is not bad, I would also therefore expect dividends to resume in 2021 giving the share price a fillip. So even if full recovery takes until 2022, I am very content to hold and am contemplating stocking up if I get some free cash. Long term they look a very solid strategic play.

(In contrast, I have some hospitality and retail shares - all big losers!! -where I hope to get (some of) my losses back when lockdown is lifted but that is purely tactical trading and hope!)

5th Jan '21

Well its doing OK for me up 30%. I took a small top slice at 215 and think I am going to buy back. Thanks for the prompt. I also noted the LON:BRCK update.

Also worth noting is the news on record mortgage lending - does not automatically say house building is heading south to me!!

21st Jan '21

Well our faith has been reinforced by todays trading update at LON:IBST . The numbers hint to me that margins are growing - which I suspect might be supply shortage driven. Either way I can see this returning to somewhere near the early March Price as demand and volumes pick up.

LON:IBST

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Berksbee

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