Ibstock sees demand recover in third quarter amid improved housebuilding activity

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Ibstock Plc (LON:IBST) has reported a “continuing recovery” in demand in its third quarter, highlighting activity in both its repair, maintenance and improvement (RMI) and merchant markets amid an uptick in housebuilding.

In a trading update for the three months to September 30, the brick and concrete maker said trading conditions in the quarter had been “improving steadily” with robust activity levels across its markets.

READ: Ibstock sales volumes bounce back but outlook remains uncertain

Ibstock said both its clay and concrete business benefited from the improved conditions, with group volumes recovering to around 90% of last year’s levels in September and remained at these levels during October. Revenues for the period were 88% of those of a year ago.

The company also said the improved volumes and cost and capacity actions have resulted in “an encouraging recovery in margins”.

Looking ahead, Ibstock said it exited its third quarter with “good momentum” and that its current trading is ahead of its previous internal base case for the full year. Subject to no further material disruption, the company said it expects adjusted earnings (EBITDA) of around £50mln for the 2020 financial year.

“We are encouraged by the continued recovery in demand seen in the third quarter in both our Clay and Concrete businesses, although we remain mindful that there is significant uncertainty in the period ahead”, chief executive Joe Hudson said in a statement.

“We remain confident in the recovery of our markets over time and that the actions we have taken in the business leave us both with the necessary flexibility to meet current challenges and an organisation well positioned to take full advantage of future opportunities”, he added.

“With housebuilders and builders merchants getting back to work in the third quarter, and having cleared out a lot of their existing inventory earlier in the year, demand for Ibstock’s products has reached 90% of pre-[coronavirus] levels. Given the relatively high fixed cost base inherent in a manufacturing business, that’s been a lifeline for the group – and means it’s expected to post a profit for the full year and start to reduce its debt pile. Unless we see a second wave of infections spark another shut-down of the construction industry, the group should be leaving the worst behind it”, said Nicholas Hyett at Hargreaves Lansdown.

“During the peak of the lockdown the group took steps to trim costs and mothball older, less efficient factories. That could prove crucial in the months ahead, as a gloomy economic outlook doesn’t usually bode well for construction activity. We also think debt reduction is likely to remain a priority for the group in the near future – which might hold back investment in new capacity and dividend payments to shareholders. However, in such a cyclical industry solid foundations are key”, he added.

Despite the trading recovery, Ibstock’s shares were down 8.1% at 164.3p in mid-morning trading on Wednesday.

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