Market conditions mean that I’m struggling to find new stocks to add to my screen-based Stock in Focus portfolio system.
As I write, just eight stocks qualify for my buying screen. Of these, four are already in the portfolio and three are ruled out for various other reasons. That leaves one company, FTSE 250 firm Forterra.
Forterra (LON:FORT)
This brick-and-block maker was founded as part of Hanson in the 1960s. Hanson was acquired by Heidelberg Cement Group in 2007.
Hanson’s UK building products division was then sold to private equity in 2015 and rebranded as Forterra. A London IPO followed in 2016, hot on the heels of rival Ibstock (LON:IBST) in 2015.
Both firms’ private equity owners were keen to cash in on surging demand for new homes, aided by the Help to Buy scheme.
Forterra shares have delivered reasonably good returns for shareholders who have caught the lows, but performance has otherwise been somewhat rangebound:
Performance against key UK rivals has also been middling. Forterra has outperformed larger Ibstock (LON:IBST) but has lagged behind premium brick specialist Michelmersh Brick Holdings (LON:MBH) on a five-year view:
Looking ahead, I think it’s fair to assume that market conditions could get tougher. Rising interest rates, surging inflation and the possibility of a recession could all have a negative impact on construction activity.
This could provide an interesting backdrop for the opening of Forterra’s £95m new factory in Desford, which is due in 2023. Management say the new plant could boost profits by a third from current levels by 2025, assuming demand remains stable.
The risk is that this extra capacity will come onstream just as demand eases. That could weaken Forterra’s pricing power, although I’d guess the initial impact would be to displace imported bricks.
Fortunately, it’s not my job to make macroeconomic predictions. I’m just here to review the numbers, which look quite positive to me.
Forterra passes all of my screening tests with ease, and also scores well with Stockopedia’s algorithms:
As usual, I’ll examine Forterra by looking at its value, quality and momentum metrics, highlighting those which seem significant to me.
Value: better than it looks?
ValueRank: 53
Forterra’s ValueRank is by far the stock’s weakest factor…
