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Brickmaker Ibstock hails rising UK demand as new factory opens
Brick maker Ibstock reported 4% revenue growth for 2017 as UK demand increased as the year went on, but the US was squeezed by a more competitive new build market.
Revenue growth was shy of the 6% growth expected by analysts, but the FTSE 250-listed group said adjusted earnings before interest, tax, depreciation and amortisation remained in line with expectations, with the consensus currently expecting EBITDA of £118m. This implied profit margins were slightly better expected.
Representing 80% of the group, the UK business lifted revenues 5% as brick markets proved stronger than anticipated, with "mid-single digit" volume growth for clay brick and further volume and price growth in the concrete businesses.
Ibstock Brick, which is Britain's largest brick manufacturer and supported by units specialising in concrete products such as roof tiles, masonry substitutes and lintels, was unable to meet demand during the year, which bodes well for the new brick factory in Leicestershire that opened at the end of 2017 and will increase group manufacturing capacity as output progressively ramps up during 2018.
The new Leicestershire will be fully commissioned towards the end of this year, increasing annualised capacity by 100m bricks or around 13%.
An "more competitive" US market saw a 2% decline in sales, or 6% at constant exchange rates, not helped by a less favourable product mix. The recent changes to US taxes are not expected to have much effect on 2017 results apart from an expected non-cash tax credit from the revaluation of deferred tax balances.
Net debt at 31 December 2017 improved on the prior year despite significant investment in expansion projects and is expected to be in line with management expectations with leverage roughly equal to adjusted EBITDA.
Shares in Ibstock, which rose more than 40% last year, fell more than 3% on Thursday to 254.2p.
Analysts at UBS noted that UK brick deliveries increased 12% and imports 37% in the year to end-November, leading to an overall market of 2.3bn bricks and domestic capacity of 2bn bricks. "This effectively sold out position bodes well for the ramp up of Ibstock's 100m brick facility in Leicester, which started production at the end of 2017 and improved pricing dynamics for the year ahead." UBS sees prospects for positive delivery as being better than this time last year.
JPMorgan Cazenove, which is corporate adviser to Ibstock, noted that there was no specific commentary on the brick pricing outlook at this stage, but acknowledged it was "too early" for the group to comment meaningfully on price.
"While last year's statement at this point stated that price negotiations have been concluded 'in line with management expectations', at that point there were misplaced concerns that post-Brexit price increases could fail to cover cost inflation.
"Given that these concerns are no longer there, these comments become somewhat redundant in our view," analyst Emily Biddulph said, awaiting more detail alongside full year results on 6 March.
She did not see the stateside decline as being material on profits. "While the US slowdown isn't good news, we already forecast no growth in the US in future years, and at just 8% of EBITDA, we continue to see little scope for the US to meaningfully impact earnings."