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.
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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
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