Ibstock PLC (IBJHF, Financial) (LSE:IBST, Financial) is the largest manufacturer of bricks in the United Kingdom and receives 20% of its revenues from the U.S. The company is very profitable and holds a small monopoly as it is difficult to build new plants because of environmental regulations.
The stock trades for 3 pounds ($4.21), there are 406.42 million shares and the market cap is 1.219 billion pounds. Earnings per share were 18.1 pence and the price-earnings ratio is 16.57. The dividend is 9.1 pence and the dividend yield is 3%. So far, seems like a pretty decent valuation.
Revenue for 2017 was up 4% to 452 million pounds. Earnings before interest, taxes, depreciation and amortization was up 7% to 120 million pounds. That’s an EBITDA margin of 26.5%.
The balance sheet shows 31.5 million pounds in cash and 53.4 million pounds in receivables. The liability side shows 85.3 million pounds in payables and 148.4 million pounds in debt. Not too bad. The cash flow statement shows 93.8 million pounds in cash flow from operations and 37.8 million pounds in capital expenditures. That’s a free cash flow of 60.5 million pounds and a free cash flow yield of 4.96%, which is what makes this stock interesting. The year before, free cash flow was 34 million pounds.
The company has 28 clay and 15 concrete plants throughout Britain and the U.S. Products are manufactured under the brand names Forticrete, Supreme, Anderdon and Glen-Gery in the United States. Ibstock has roots going back 200 years in England. In 1999, it was purchased by aggregates giant CRH (CRH, Financial). In 2015, it was purchased by Bain and subsequently taken public. Joe Hudson was recently appointed CEO.
I looked to see where Glen-Gery bricks are available in the U.S. Mostly at masonry supply depots. This YouTube video is very interesting. The Chicago plant utilizes robotics and is only run by 24 employees, who turn out 110 million bricks a year. This YouTube video shows how bricks are made. I was surprised the bricks in this video are made from shale.
I looked at Home Depot’s (HD, Financial) site to see if Glen-Gery was sold at its stores. The name did not come up in a search. When searching the word “brick,” mainly veneers came up. In my unprofessional opinion, it seems like serious masons don’t use Home Depot. I see that Lowe’s (LOW, Financial) uses Oldcastle, which is manufactured by Ibstock’s old owner, CRH.
The idea came to me from reading a Value Investor Insight article from Vulcan Value Partners. C.T. Fitzpatrick pointed out that it’s difficult to build a new brick factory in Britain because of environmental regulations. He also pointed out that brick manufacturers have a mini monopoly because of the heavy weight of brick. You cannot bring it from great distances because it would cost too much.
It appears the cost of clay is about $15 per ton. In the housing crisis, it was down to $12. As one might expect, the price is cyclical.
Of course, no discussion would be complete without discussing the housing market. There is a dearth of new homes being built in the U.S. as builders are weary of a repeat of 2008-09. This could portend good things for Ibstock. Rising interest rates, however, could dampen demand as the price of new homes could rise.
I like Ibstock. I had never heard of it until now. It looks like it is difficult to buy shares in the U.S., so you would have to get your broker to buy in London. The profits are high and aggregates often have monopolies because of the weight of their goods. Ibstock is a nice stock to follow for the international value investor.
Disclosure: We do not own shares.
