Brickability Group – looking for a further 15% price uplift

This company is all about growth and its interim results to the end of September are due to be announced within the next three weeks.

A fortnight ago Brickability Group (LON:BRCK) informed shareholders that it is in line to show doubled figures for the first six months of the current trading year.

Doubled in value in the last two years

When it floated on AIM in late August 2019 it was valued at £149.8m, with 87.3m of its new shares being Placed at 65p each, raising a net £53.7m for the company.

Today the group has a market capitalisation of £325m – it has grown both organically and through strategic acquisitions.

It is a classic example of a ‘buy to build’ combine of successful individual businesses pooled into one cohesive structure aimed at maximising both revenue and growth.

It has developed or acquired businesses that have built local, regional or national brand strength while being part of a business with strong buying power.

The group’s business

The group’s businesses are centred into three core product areas: bricks and building materials, taking in 15 businesses operating from 27 sites around the country; roofing products and services, three businesses from two sites; and also heating, plumbing and joinery, which takes in six businesses operating from six sites.

The Bracknell-based group, which was incorporated in 2017, employs some 325 personnel.

The company is a market leading supplier of facing bricks, blocks, ceramic paving products, rainscreen cladding systems, architectural masonry, slates and concrete roof tiles, prefabricated flint blocks, and loose walling stones, as well as joinery materials, radiators, heated towel rails, underfloor heating systems, and associated parts and accessories.

It supplies over 300m bricks annually.

With its aim to be the leading supplier it serves the construction industry, including house builders, developers, contractors, general builders, and retail.

Over the last 25 years it has built up an excellent relationship with both its customers and its suppliers.

As it has grown the group has developed central agreements with larger customers which are delivered by the regional businesses.

With its regional sales network it offers a national coverage with specialist knowledge and technical expertise.

That coverage and client spread gives it the scale and buying power to access high quality products and supplies in both the UK and abroad.

The group also offers construction related services, such as brick matching; a brick calculator, which accurately estimates the number of bricks or blocks a project will require and thereby prevent wastage; and quantity take-off services that provides measurements and accurate estimated quantities as part of the package, it can also predict a particular project’s expenditure and attempt to adhere to a specific budget required.

Divisional sales split

In the year to end March 2021 it had a group revenue of £181.1m.

Looking at a divisional split: bricks and building materials represented £144.21m of sales (79.6%); heating, plumbing and joinery made up £24.45m of the total (13.5%); while roofing services sold £12.43m (6.9%).

All the sales were in the UK, bar £960,000 sold into Europe.

The equity shows a strong Management holding

There are 298.53m shares in issue, which at 109p values the group at £325m.

The list of larger holders includes Liontrust Investment Partners (9.96%), Promethean Investments (9.72%), Octopus Investments (7.17%), FIL Investment Advisors (5.38%), Amati Global Investors (4.24%), Otus Capital Management (4.23%), and Ruffer LLP (3.18%).

Three directors own just under 25% of the equity: Alan Simpson (CEO) holds 11.2%; Paul Hamilton has 10.3%, while Arnold van Huet owns 3.35% of the equity.

Recent Trading Update

On Wednesday 13 October the group issued an update covering its interim period.

It noted that the UK housebuilding sector had remained in good health following a strong post pandemic recovery. It was driven by changing demographics, significant pent-up demand and assisted by government incentives.

The group considered that it was initially well positioned to benefit from those structural tailwinds and clearly stated that it was in a position to continue profiting from those prevailing themes.

The company’s management stated that its order book was extremely strong and “as one of the UK’s leading building materials distributors, Brickability is well placed to supply UK’s housebuilders as demand is expected to continue to strengthen.”

Furthermore, after the successful £63m acquisition of the Taylor Maxwell timber wholesaling and merchanting business in the summer, the group has quite an acquisition pipeline growing that should broaden its offering, while also taking it into renewable energy products.

The Update suggested that group revenue for H1 2021 is expected to be some £223m, an increase of around 200% compared to H1 2020, while EBITDA could be £17m compared to £8m previously.

Broker’s View

Analyst Kevin Cammack, at the group’s brokers Cenkos Securities, has estimated that the current year to end March 2022 will see much more than doubled sales to £391.3m (£181.1m), while adjusted pre-tax profits could rise to £25.5m (£15m), with earnings of 7.3p (5.6p) and a dividend of 2.1p (2p) per share.

For its 2023 year he goes for £503.5m of sales and £34m of profits, worth 9.2p in earnings and easily covering a 2.3p per share dividend.

Understandably Cenkos rate the group’s shares as a ‘buy’.

My View

This really is a growth group, whose shares are worthy of any portfolio.

It has been an excellent performer since I profiled it 18 months ago, up 280%, and there is so much more to go yet.

Perhaps the interim results announcement in the next few weeks will create further impetus.

They have peaked recently at 114p, more than doubling my price objective.

Now priced at 109p, I see them easily rising to 125p without any real interruption in the short term and up to 150p next year.

(Profile 16.04.20 @ 39p set a Target Price of 55p*)