Analyst at Berenberg only slightly nudged up their target price on construction firm Ibstock from 230.0p to 255.0p on Tuesday, stating a new-build recovery appeared to already be priced in.
While Berenberg expects housebuilding activity to continue to recover over the course of the year, meaning it does believe that an upside risk to forecasts exists, it also believes that this has already been reflected in the group’s shares. It also reckons better risk/reward scenarios exist elsewhere in the sector.
The German bank, which reiterated its ‘hold’ rating on the stock, did acknowledge that first-quarter trading highlighted the strength of the new-build recovery.
“Although not quantified, the group noted that it had made a good start to the year, trading ‘modestly ahead of expectations’, with good demand from both the new-build housing and the renovation, maintenance and improvement end-markets,” noted Berenberg.
“Industry data suggests volumes till February were down just 6% year-on-year. Moreover, although increasing sequentially, inventory levels are -30% year-on-year and at their lowest levels since 2014. With demand in the new-build and RMI sector encouraging, production levels should continue to rise and drive margins back to pre-Covid-19 levels.”
Along with its trading update, Ibstock also announced it would recommence the project to redevelop its Atlas site to replace its existing mothballed facility, with the redeveloped facilities likely delivering a capacity of 115.0m bricks each year and a net increase of 75.0m bricks, leading Berenberg to upgrade its outer-year forecasts.
“However, the plant is not expected to begin commissioning until H2 2023, with full production not expected until late 2024 – meaning investors will have to wait at least three years for these benefits,” noted Berenberg.