We highlighted Ibstock as a stock to buy before the election to capture the new Labour government’s housing policies, and Ibstock today said it expects a ‘more positive backdrop’ for the housing industry in its interim results, which helped shares higher in the immediate reaction.
After suggesting the stock when it was trading at 158p, it rallied to highs of 196p before falling back. This rally priced in enthusiasm around any boost in construction, and today’s results serve as a reminder of the more favourable conditions on the horizon as shares jumped over 6% to 183p.
Of course, the new Labour government has no impact on Ibstock’s first-half earnings, and the brickmaker has revealed a challenging start to 2024 as the well-documented constraints on new building activities persisted. In response, Ibstock is taking defensive measures, including cost-cutting schemes and the reduction of the dividend.
The combination of positive cost-cutting actions and an improving macro outlook offset any concerns about a 20% drop in first-half revenues and a 60% slump in profit before tax on Wednesday.
“There’s no getting around it, brickmaker Ibstock’s had a tough first half as elevated mortgage rates continue to weigh on housing affordability, causing housebuilders to be conservative on new building projects,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“Ultimately, that’s contributed to reduced demand for Ibstock’s products. While some leading indicators are beginning to improve, it’s very early days and their impact on the current financial year is likely to be limited, so Ibstock expects cash profits (EBITDA) in the second half to be in line with the prior year’s level of around £44mn.
“The new government’s emphasis on reforming the national planning framework and speeding up the delivery of new housing and infrastructure is a significant positive for the industry, likely increasing demand in the medium term.
“In the meantime, Ibstock needs to look after its balance sheet, and the dividend has been wound back to help preserve cash. Cost cuts are continuing at pace, bringing more than £20mn of savings in the first half. The group says these actions haven’t dented its ability to build back capacity as markets recover. But just how long it will be before that happens remains to be seen.”