Ibstock shares gain on outlook for sector despite profits, sales slump

Brick maker and building supplies company Ibstock reported a slump in first-half profits and sales as Britain’s soggy summer hit the construction industry but sounded a note of cautious optimism around medium-term prospects under the new Labour government's plans to accelerate house building, sending shares in the company higher.

Pre-tax profit more than halved to £12m for the first six months of the year compared to £30m last year. Revenue was down 20% to £178m. Ibstock cited down to lower market demand, exacerbated by the wet weather. The FTSE 250 firm also announced a 56% cut in the interim dividend to 1.5p a share in order to save cash.

Core earnings fell to £38m from £63m the previous year.

“Market conditions remained challenging in the first half, as expected, with sales volumes below those reported in the comparative period,” said chief executive Joe Hudson.

“Lead indicators point to an improving sector picture, and although we are taking a cautious view of the extent to which this will translate into a demand improvement in the balance of the year, we expect adjusted EBITDA for the second half of the 2024 year to be broadly in line with the comparative period in 2023.”

“The new government’s commitment to increasing the supply of new homes creates a more positive backdrop for medium term demand, and the group remains well-positioned for market recovery.”

Under plans unveiled by Prime Minister Keir Starmer after Labour's crushing election win on July 4, the government has pledged to build 1.5 million new properties over five years with changes to the planning system and development on lower-quality 'grey belt' land.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown said Ibstock also had to cope with higher mortgage rates continuing to weigh on housing affordability, "causing housebuilders to be conservative on new building projects".

"While some leading indicators are beginning to improve, it’s very early days and their impact on the current financial year is likely to be limited, so Ibstock expects cash profits (EBITDA) in the second half to be in line with the prior year’s level of around £44m," he said.

"The new government's emphasis on reforming the national planning framework and speeding up the delivery of new housing and infrastructure is a significant positive for the industry, likely increasing demand in the medium term."

"In the meantime, Ibstock needs to look after its balance sheet, and the dividend has been wound back to help preserve cash. Cost cuts are continuing at pace, bringing more than £20m of savings in the first half. The group says these actions haven’t dented its ability to build back capacity as markets recover. But just how long it will be before that happens remains to be seen.”

Reporting by Frank Prenesti for Sharecast.com