Canaccord lowers target price on Ibstock

Analysts at Canaccord Genuity lowered their target price on brick maker Ibstock from 213.0p to 186.0p on Friday, stating it was still waiting for operational leverage to the upside.

While Canaccord said Ibstock's first-half results "were very weak", with an 85% fall in underlying earnings, it also said it was "not hugely surprised" by the fall in profits given operational leverage within the group and the number of sales lost during Covid-19-related shutdown in the second quarter.

On a more positive note, the Canadian broker noted it was "comforting" to see that net debt had fallen during the second quarter as cash flow started to improve and sales returned.

"Management has proactively restructured operations, including the closure or mothballing of three sites which reduces the fixed cost base by circa £20m and supports group margin recovery over the medium term to levels seen in recent years," said the analysts.

However, with sales expected to continue recovering, the analysts highlighted that Ibstock should now benefit from operational leverage on the upside.

"We expect a sharp recovery in EBITDA in the second half, albeit dampened by the fact that not all plants will be operating at maximum efficiency or capacity," said Canaccord.

Canaccord, which reiterated its 'hold' rating on the firm, added: "The investment case from here essentially hinges on what revenue recovers to in 2021 and how much operational leverage the group benefits from next year. While we expect recovery into 2021, we do not expect the group to reach EBITDA levels close to those seen until 2022"