Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Ibstock - cash profit exceeds group's expectation

Ibstock's cash profit (EBITDA) was marginally ahead of its own expectations in the first quarter, despite subdued demand...

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Ibstock's cash profit (EBITDA) was marginally ahead of its own expectations in the first quarter, despite subdued demand. The group cited disciplined cost management and good commercial execution for the positive surprise.

Cost inflation continued in the first quarter, but the pace of increase had moderated from the levels seen in 2022.

Ibstock's hedged around 95% of its energy requirements for the first half of the year, and around 75% for the second half - both at prices above prior years.

CEO, Joe Hudson, said he expects "market conditions to improve as the year progresses." He also remains confident the group can "deliver a full year performance in line with market expectations."

The shares fell 1.1% following the announcement.

View the latest Ibstock share price and how to deal

Our view

The group's 2022 revenue and profit were both materially ahead of prior year and pre-pandemic levels. And Ibstock's followed this up with a solid start to 2023. Cash profits (EBITDA) in the first quarter are running ahead of its own expectations, as the group keeps a sharp focus on managing both capacity and costs. Cost inflation's also shown early signs of moderating, but still remains high and will continue to be an issue throughout the rest of the year.

Ibstock already has the largest brick production capacity in the UK, and the group's looking to increase capacity further with the modernisation of two of its factories. The upgrades are expected to complete by the end of this year, lowering production costs and allowing the group to meet higher demand as it arises.

There's also a push to become a leader in more sustainable housebuilding with the advent of a new division - Ibstock Futures. The first order of business for this new arm is brick slips, a type of lightweight brick facade. The group's invested heavily to build the UK's first brick slip factory, which is expected to come online by the end of the year.

The division also added a glass reinforced concrete business to its portfolio in 2022, as well as a fireproof cladding company, further progress in building out the sustainability strategy. But if trading deteriorates significantly this year, continued investment could put the group in a precarious position.

But keep in mind, there are a few hazards on site for Ibstock. A potent mix of retreating house prices and higher mortgage rates have seen sales rates fall in the newbuild housing market. This is causing housebuilders to ease up on newbuild construction in a bid to conserve cash, meaning there's less demand for Ibstock's products.

There are also concerns that housebuilding could see a more significant slowdown. That's backed up by Ibstock's reduced activity towards the end of 2022, which has continued into the new year. And according to the Home Builders Federation, the supply of new housing in England over the coming years is set to fall to the lowest levels since the Second World War.

A lot of focus over the last year has gone on shoring up the balance sheet, which allowed for a now completed buyback programme. But demands on cash are not insignificant between rising investment and dividend payments.

Ibstock's valuation's only slightly below its long-term average, which doesn't price much in for the group's attractive long-term growth prospects. But in the current deteriorating environment, there's plenty room for negative shocks which could cause a bumpy ride for investors over the short term.

Ibstock key facts

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.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 27th April 2023