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Ibstock - volumes down but full-year expectations unchanged

Ibstock's half-year revenue fell by 14% to £223m.

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Ibstock's half-year revenue fell by 14% to £223m. This reflects lower sales volumes, especially in residential, which was partly offset by higher prices.

Underlying cash profit (EBITDA) fell 11% to £63m, driven by the lower sales volumes.

Underlying free cash flow fell from a £30m inflow to a £22m outflow, due to investment in new brick plants and other growth projects. Net debt rose by £53m to £89m.

Ibstock continues to expect a performance in line with market expectations. Analysts are forecasting full-year revenues of £487m.

The interim dividend was raised 3% to 3.4p per share.

The shares rose 4.7% following the announcement.

View the latest Ibstock share price and how to deal

Our view

First-half results have shown Ibstock's feeling the effects of a housing slowdown. Residential volumes were down significantly year-on-year, with price increases not enough to stop group revenues declining at double-digit rates. Cost inflation's showing early signs of cooling but will remain an issue to wrestle with throughout 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 continues to deteriorate this year, further investment could put the group in a precarious position.

The current high-interest rate environment is putting pressure on mortgage affordability, causing a slowdown in the residential housing market. That's leading housebuilders to ease up on newbuild construction in a bid to conserve cash, meaning there's currently less demand for Ibstock's products. We've seen this right across the housing sector, with the number of completions falling year-on-year. If a more significant slowdown materialises we could see Ibstock's volumes fall further, leaving little scope for price rises to help soften the blow.

Despite the current market slowdown, the group's continuing to increase investment in its brick manufacturing network, which should fuel growth prospects when the market turns. But how long before that happens is uncertain, and in the meantime, it's putting a strain on Ibstock's cash flows.

Ibstock's valuation's 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.

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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.

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Article history
Published: 2nd August 2023