Ibstock shares still offer value after rebounding from 52-week lows, and the stars may be aligning for the brickmaker with a change in government promising increased homebuilding.
We suggested Ibstock shares to readers in September 2023, when the UK housing market was showing early signs of recovery. UK house prices have since stabilised, and Ibstock shares have followed suit.
The next catalyst for Ibstock shares could well be firm plans to encourage home building during the next parliament.
One thing the Tories and Labour can agree on is the need to build new houses. How many they will actually build in the next parliament remains to be seen but Ibstock will inevitably see demand for its bricks increase should manifesto promises be followed by action.
The Tory’s plans to build 1.6 million homes have rightly been met with scepticism, given that they’ve had 14 years to boost house building and are unlikely to be in a position to enact the manifesto. Labour said they plan to build 1.5 million homes, and will likely ease planning laws, helping spur a wave of building.
Recovery
This is a recovery play with ample potential upside in the medium term, but investors should expect some volatility, which could provide a better entry point than the current share price.
In a recent trading update, CEO Joe Hudson said; “While we expect market demand to remain subdued in the near term, lead indicators reflect an increase in housing market activity, which offers encouragement for an improvement in volumes in due course.”
Ibstock has suffered dearly over the past two years as construction levels decline amid higher interest rates. The worst may still be to come if the Bank of England keeps rates at similar levels into next year.
In addition, just last week, new data revealed a sharp increase in mortgage defaults, demonstrating underlying pain for homeowners struggling to meet higher mortgage rates.
There may still be a flush out of homeowners who can’t afford their mortgages leading to lower prices. This would be a favourable situation for Ibstock.
Lower prices would bring first time buyers into the market and existing owners would take the opportunity to upgrade. This spurt in activity will play straight into the hands of the house builders who will jump at the chance to meet demand with new builds.
Housebuilders, of course, will be straight on the phone to Ibstock.
The company has taken steps to control costs during the downturn, which will help amplify profits when demand recovery builds momentum.
