The latest trading updates from two listed building materials producers - Ibstock (IBST) and Brickability (BRCK:AIM) - shows investors that the market for new homes remains in rude health despite concerns over affordability.
Demand for materials is so strong that suppliers can recoup all of their increased costs by pushing through price increases to developers.
PRICE-MAKERS
Brick and concrete paving manufacturer Ibstock is a great example. Ahead of its annual general meeting later today (21 April 2022) the company revealed first-quarter trading was better than expected thanks to insatiable demand from residential builders.
The firm said its ‘dynamic commercial approach’ had enabled it to fully recover its higher input costs by passing on price rises to its customers, meaning margins have held up.
As a result, the company now expects its performance for the year to this December to be ‘modestly ahead’ of its previous guidance.
The firm said the operating environment ‘continues to be characterised by significant levels of input cost inflation, primarily in the categories of energy, freight, carbon and materials’.
‘In relation to energy, our hedging strategy has positioned us well against a backdrop of elevated prices. We have now substantially covered energy requirements for the first half of the year, have purchased around 75% of requirements for the second half and have over one-third covered for 2023.’
The company said it was ‘committed to taking the actions necessary to protect and maintain margins going forwards’.
It also announced that with group leverage below its target range it would buy back up to £30 million of its own stock, sending shares 8% higher to 180p.
POSITIVE MOMENTUM
Ibstock’s Smaller rival Brickability (market capitalisations of £820 million versus £310 million) also posted a trading update today and raised its forecasts for the year to the end of March after a strong fourth quarter.
The firm said due to ‘ongoing positive momentum’ in the housing market it expected revenues of roughly £520 million and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of not less than £38 million, both of which were ahead of market estimates.
‘Whilst remaining conscious of potential inflationary impacts, near term macro-economic conditions and the prevailing global geo-political backdrop, the group believes that the underlying long term demand for UK housing remains robust as does the demand for quality materials for the construction sector generally’, said the firm in its statement.
Brickability shares climbed 2.5% to 100p.
