Ibstock shares were slightly weaker on Wednesday after the company announced a 21% drop in full-year revenue to £405m.
The brickmaker has been dogged by slow demand from the residential sector amid a drop in new home sales.
Ibstock will hope the worst is behind them. However, by their own admission, the market remains highly uncertain, and cost inflation persists.
That said, trading has been in line with management’s expectations, and analysts suggest 2024 could be the year the industry turns around and supports higher revenue for the group.
Although shares were down 3% at the time of writing on Wednesday, the stock has had a good run since the lows towards the end of last year.
UK Investor Magazine published an article titled ‘Ibstock: start buying the brick maker in preparation for the UK property recovery’ in September last year.
We wrote:
Indeed, for all the gloom attached to the UK housing market, Ibstock’s performance in 2023 hasn’t been that bad.
In the first half of 2023, the brickmaker generated more revenues of £223m, only 14% down on the same period last year.
Things may get worse in the second half, but with the stock trading at 6.4x historical earnings, there is plenty of wiggle room for a long-term hold.
Things did get worse in the second half, but the forward-looking nature of the markets coupled with deep value in Ibstock shares sent the stock higher into the new year.
Despite the challenges faced by the industry, Ibstock remains a cyclical play for the UK property recovery. The company is taking measures to reduce costs, which will result in a leaner business when the market improves.
“It’s no real surprise to see Ibstock wrestling against the struggles of a housing market slowdown. Residential volumes have dropped significantly in 2023, and the group expects business to remain subdued over the near term,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“To combat the challenging market backdrop, Ibstock reduced headcount and pulled back on production, carefully matching supply with demand to try and avoid a build-up of inventory. This involved the permanent closure of the group’s brick factory in Surrey, which will cost the group around £20mn over the current and prior year. This isn’t great news and raises questions about the group’s ability to ramp up production quickly when the market turns. In the meantime, cost-cutting measures remain the key route to protecting group margins.”
“There are some very early signs the worst may be behind Ibstock now. Cost inflation appears to have eased and the fact that lenders are becoming more competitive on mortgage rates is a major positive for homebuyers, which ultimately feeds through to increased demand for Ibstock’s products.”
