Brickability outlook more conservative amid weak brick market

Construction materials distributor Brickability said in an update on Tuesday that, despite positive performances in the distribution and contracting divisions, weakness in bricks and building products was leading to a more conservative full-year outlook.

The AIM-traded firm said market analysis had shown a significant decrease in UK brick volumes over the last year, with UK dispatches for 2023 around 30% lower than in 2022.

As a result, brick imports into the UK had decreased by an estimated 42% over the same period.

Full-year group sales volumes for the 2024 financial year in the bricks and importing divisions reflected those market trends, with lower revenues for the year-to-date compared to the prior year.

Additionally, pricing dynamics were becoming increasingly competitive due to softer demand.

However, the company said its distribution division had maintained robust trading despite slowdowns in private house building and residential repair, maintenance and improvement (RMI) markets, with strong gross margins.

Its subsidiary Upowa was said to be well-positioned to capitalise on regulatory drivers in new-build housing and the rising demand for sustainable and zero-carbon technology solutions.

The contracting division's performance meanwhile remained positive, with the integration of recent acquisitions underway.

Both Topek Holdings and TSL Assets, recently acquired, were seing heightened levels of enquiries as part of the expanded group.

Looking ahead, Brickability said lower demand levels in bricks and associated building products were expected to persist until the end of the current financial year.

As a result, it anticipated its full-year adjusted EBITDA to align towards the lower end of current market expectations.

Despite inflation trending down and expected interest rate reductions benefiting the broader market, trading conditions were expected to remain challenging for a longer duration than initially thought.

In light of those factors, the board said it had opted for a more conservative outlook for the group's recovery over the next 12 months.

However, the underlying long-term demand for UK housing remained robust, positioning the group favourably to capitalise significantly as market conditions and volumes recovered.

“I am extremely pleased with the performance of the group and of its employees, given the continuing challenging market conditions outside of our control,” said chief executive officer Alan Simpson.

“The short-term factors impacting our businesses are well publicised, however, we are very excited by some of the opportunities we are seeing in the market.

“We continue to make further progress on our strategy, which includes diversifying the group through differentiated product offerings and acquiring higher margin revenue streams, the benefits of which we are already seeing.”

Simpson said the firm’s two recent acquisitions demonstrated its ability to identify and execute quality buyouts, while maintaining a robust balance sheet.

“We have maintained a disciplined approach to cost and cash management during this period, and I am confident the group is extremely well positioned across each of its divisions to benefit when activity in its end markets recover.”

At 1152 GMT, shares in Brickability were down 11.98% at 67.25p.

Reporting by Josh White for Sharecast.com.