First Read: Ibstock plc "AGM trading update: recovery since March" (Neutral)

Research evidence excerpt

First Read: Ibstock plc "AGM trading update: recovery since March" (Neutral)

Forecast returns

Forecast price appreciation 11.7%

Forecast dividend yield 2.1%

Forecast stock return 13.8%

Market return assumption 9.3%

Forecast excess return 4.5%

Company Description

Ibstock is a leading manufacturer of bricks in the UK, with a c40% share of domestic

dispatches (excluding imports). The group also owns concrete products businesses in the UK,

through its Supreme and Forticrete brands, and has recently created a new division, Ibstock

Futures. The group derives ~60% of sales from new-build housing, ~30% from RMI and

~10% from infrastructure and other new-build.

Valuation Method and Risk Statement

Building material companies are by their nature exposed to national building cycles, which are

influenced, in our view, by the level of interest rates, the rate of growth of GDP, employment

growth, population growth and the general condition of buildings (public and private).

Companies' sales are also sensitive to selling prices, which can vary as capacity and demand

levels fluctuate. Costs can be impacted by fuel costs (including bitumen), labour costs and

other raw material costs. International companies in our coverage list are sensitive to

exchange rates, although this is generally only through translation. The companies also face

political risk, and can be affected by weather. Ibstock is highly exposed to the development of

the UK residential construction market. This may in turn be affected by the liquidity of the UK

banking sector, interest rates, house prices and consumer confidence. Product differentiation

in the brick market is generally low, and pricing power largely depends on industry capacity

utilisation. Our price target is based on DCF.