Ibstock has enjoyed a continued recovery in demand during the fourth quarter. The group recorded around £315m in revenue for the full year, reflecting a 23% decline overall, but the fall was smaller (around 10%) in the second half.
Improved volumes, restructuring and cost control efforts have improved cash profit (EBITDA) margins, which were almost at 2019 levels at year end.
Ibstock now expects to report underlying EBITDA "modestly above" the previously forecast £50m. Cash flow was "materially ahead of expectations", helping net debt reduce to around £70m, down from £103m last June.
Ibstock shares rose 3.0% in early trading.
The closure of much of the UK construction industry in April and May saw Ibstock's brick sales slow to a trickle. Exposure to infrastructure and repair and maintenance markets meant concrete performed better, but the picture was still pretty ugly.
Demand has recovered more recently, and solid clay bricks and concrete sales are now ahead of 2019 volumes. That's a faster recovery than we had feared. While the pace of housebuilding could slow again in the months to come, the group should continue to recover along with the economy if the vaccine rollout goes smoothly.
Earlier in the crisis Ibstock was focussed on conserving cash through lower costs. The group closed or mothballed three factories, cut capital expenditure and around 15% of staff were affected by 'restructuring' efforts. That will have reduced capacity in the short term, so it's important the group retains the ability to scale up quickly to meet future demand.
Nonetheless, net debt rose substantially earlier in the year, but the recovery, cost control measures and cancelled dividend have since improved the cash flow picture. Net debt now stands at £70m, down from £103m in June and even below the £85m it stood at before the crisis.
Despite the progress here the group is still more highly leveraged than we would like as profits are also lower than in the past. We expect Ibstock to continue to prioritise the balance sheet until we can be sure the economic recovery is going to be sustained.
We're impressed by the progress made, and the group should benefit from any government spending as it looks to kick start construction. The group is also relatively insensitive to house prices - as long as properties are getting built Ibstock gets paid. Nonetheless, cyclicals like Ibstock have their fortunes tied to the wider economy. If the vaccines are as effective as hoped and we recover smoothly Ibstock should do well. If not, the group will inevitably struggle.
Ibstock key facts
- Price/Earnings ratio: 16.6
- Average Price/Earnings ratio since listing (2015): 12.3
- Prospective dividend yield (next 12 months): 3.0%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Half Year Results - 06/08/20
Ibstock reported a 36% decline in first half revenues, falling to £131m. The company reported an underlying loss before tax of £11m, compared to a £42m profit last year.
The majority of the group's manufacturing sites are now open again, with a significant recovery in demand in more recent months.
Production stopped in late March, and didn't get underway again until May. By July Clay products were delivering volumes at around 80% of last year, while Concrete sales came in at around 85%.
Clay products revenue for the half fell 43% year-on-year to £86.5m. The division reported a loss before tax of £43.4m, down from a £38.4m profit last year. The recovery later in the half has been driven by a stronger demand from builder merchants, with housebuilders relatively weaker. Ibstock plans to close two factories, representing 5% of total output, and mothball the Atlas factory in the West Midlands while delaying planned investment in the site.
The UK Concrete business saw sales fall 15% to £44.5m, or 28% on a like-for like basis. Profits before tax fell from £6.0m to a £2.6m loss. The division's better performance reflects exposure to the Renovation, Maintenance & Improvement (RMI) and infrastructure markets - with particular demand in fencing and rail.
The group has launched an extensive restructuring programme, which is expected to deliver £20m of savings in 2021. This comes at a cost of £10m and effects as much as 15% of the workforce.
Ibstock reported a £14.8m underlying free cash outflow for the half, although free cash was positive in the second quarter. However, the group also expects to incur £16m of additional cash costs related to restructuring and coronavirus.
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