Good morning!
It was interesting visiting Canary Wharf on Friday afternoon, especially at 5pm onwards, when vast streams of people were spilling out of every building, and congregating for drinks in the various bars. Makes you realise just how many people now work there - it must be an important financial centre in its own right.
I met a lawyer friend, whose office is based there. She mentioned how one client arrived to see her, and as he looked around Cabot Square, he commented, "You can just smell the money here, can't you?". She replied, "No dear, I think that's falafel you can smell, there's a little shop selling it just over there!".
Michelmersh Brick Holdings (LON:MBH)
Share price: 94.7p (down 6.7% today)
No. shares: 81.2m
Market cap: £76.9m
Trading update - I had to read this several times, to make sure I understood it properly;
Michelmersh Brick Holdings Plc (AIM: MBH), the specialist brick manufacturer and landfill company, today reports to the market on a better than expected trading performance in the second half of the year to 31 December 2015, achieved through operating efficiencies, continued low energy costs and aided by the additional capacity from Freshfield Lane.
Delivery volumes are below previous expectations as a result of a softening of the market, however average selling prices are ahead of those budgeted. As a consequence, the Group is likely to exceed the market expectations of profit before taxation for the year. The results for the full year are scheduled for release on 21 March 2016.
That's quite a strange combination of positives and negatives - which seems to be summarise as: costs down, selling prices up, but demand softening = profit ahead of expectations.
The trouble is, when demand for anything softens, then usually selling prices start falling, as manufacturers compete harder on price, in order to achieve the required sales volumes.
I vaguely recall, from a presentation by Michelmersh a couple of years ago, that supply of bricks is semi-fixed - i.e. production capacity can be increased, but it takes quite a while to set up the increased manufacturing capacity. So in the short term, prices can rise a lot, if increased demand occurs.
Valuation - as you can see, this stock looks aggressively priced right now, even allowing for it exceeding market expectations;
