Brickmaker Ibstock boosted by increased housebuilder demand and weak sterling

 
Oliver Gill
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Ibstock is the UK's largest brickmaker and seen as a bellwether for the housebuilding sector (Source: Getty)

Ibstock shares opened broadly flat this morning after announcing earnings would be in line with forecasts, with sales supported by strong second half demand the company said in its annual trading update.

The figures

The hard data is to come but the firm's trading update for the year to the December, today trailed the headlines.

Group revenue for the year is expected to be five per cent more than the previous year.

UK brick sales increased by two per cent but the firm's US arm fared much better, up four per cent on like-for-like terms but given a big boost by US currency movements - it was up 18 per cent in actual terms.

Read more: Brickmaker Forterra boosted by high housebuilder demand in late 2016

Net debt declined despite "significant spend" on major projects previously announced during the year.

Why it's interesting

Brickmakers can be seen as a bellwether for the housebuilding sector – the logic is fairly straightforward, if more bricks are being sold, they are likely to be used to build more houses.

And despite housebuilders taking a stockmarket hammering in the immediate aftermath of the Brexit vote, in the second of 2016, the demand for bricks grew. Ibstock said in its trading update:

Growing house builder activity supported a stronger second half and national brick imports declined significantly over the year.

As previously announced and in a the common trend, Ibstock is closing its defined benefit pension scheme.

Read more: Building firms hit brick wall as cost of materials keeps on rising

Giving the market some certainty for the year to come, the firm said it had locked in 2017 price negotiations and these were within expectations.

What analysts said

During 2016, sterling's slump helped British brickmakers like Ibstock. Gavin Jago, an analyst at Peel Hunt highlighted that UK housebuilders were more likely to buy bricks from British firms. He said:

Trading in the UK was stronger in the second half with brick volumes for the full year ahead of 2015. This was helped by lower brick imports which declined significantly after the movement in the sterling exchange rate after the EU Referendum.

Read more: Forterra cements cash returns

With 2017 prices lock and loaded, the other variable that will define Ibstock's fate is the number of bricks it can sell. Jago was pretty punchy with his predictions for 2017: "We expect further volume growth in 2017 to be supported by increased housebuilding activity."

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