Do solid fundamentals suggest Ibstock’s share price is undervalued?

Ibstock’s share price has been on the decline since mid-September as inflation and supply-chain disruptions weigh on the FTSE 250 firm. This fall comes despite the UK manufacturer of building materials posting impressive first-half results. Ibstock has also seen analysts at Peel Hunt increase profit expectations for the full year.

The Ibstock [IBST] share price registered impressive, double-digit growth in July and August, taking the share price north of the 200p level. However, the stock has since fallen back, dropping 6.4% last week to close at 178.1p. 
 
It has been a disappointing couple of weeks for Ibstock investors, as the UK brick manufacturer of clay and concrete bricks, roof tiles and fencing, has subsided 11.5% since 12 September. 

Is the double-whammy of inflation and supply-chain disruptions finally catching up with the FTSE 250 firm or do the company’s solid fundamentals suggest Ibstock’s stock is undervalued? 

Is Ibstock a bargain for potential investors?

As of last week’s close of 178.1p, Ibstock stock has fallen 19.9% from its 52-week high of 222.4p that it recorded on 27 September 2021 and 44.48% from its pre-pandemic January 2020 high of 320.80p. Taking a more positive view, Ibstock’s share price is 19.03% above its 52-week low of 149.63p, which was recorded in March this year. 

The intrinsic value of Ibstock’s share price is 273p, according to Simply Wall Street’s valuation model analysis, which points to a potential upside of 53.2% based on 23 September’s close. 

Interestingly, the firm’s analysis also shows that share price volatility on Ibstock’s stock is high compared with the rest of the market, which suggests the shares are likely to fall further than the average stock in a bearish market. 

However, the company’s financials appear to be in better shape. Analysts expect earnings to increase by 21% over the next few years, according to Simply Wall Street. Ibstock’s dividend yield of 4.66% offers further appeal for potential longer-term investors. 

Inflation and supply issue headwinds

The company outlined in its latest interim results that, with an escalating inflation rate intensifying the pressure on costs, alongside industry-wide supply chain issues, there are challenging macroeconomic issues to contend with during the company’s second half. 

The brick manufacturer’s first-half results and outlook did offer some reassurance to investors in the face of these difficulties, thanks in part to “robust demand across all our end markets”, according to CEO John Hudson. The market was clearly impressed, as Ibstock’s share price closed 8.69% higher after the interim results were published on 27 July. 

In an impressive set of figures, half-year underlying earnings rose 29% to £71m, while earnings per share (EPS) climbed 43% to 11 3p. The interim dividend increased 32% to 3.3p, and net debt was cut by 33% over the six month to £36m. Hudson said in his statement that, "while we remain mindful of the broader macroeconomic uncertainties, the board now expects adjusted EBITDA for 2022 to be modestly ahead of the previous expectations [that were made in April]”. 

Peel Hunt analysts increased their full-year profit-before-tax estimate for Ibstock by 4% and EPS forecast by 7%, following the update, citing robust volumes and a full recovery of cost pressures, reported Proactive Investors. In a bullish appraisal, the investment bank said Ibstock’s “second half has started well and the group has good order visibility,” adding that “progress on the new plants is going well”. Peel Hunt did maintain its profit outlook for 2023. Nevertheless, the multiple upgrades suggest there’s confidence that Ibstock can ride out the macroeconomic storms it’s facing. 

What are analysts forecasting for Ibstock’s share price?

The eight analysts offering 12-month price targets on Ibstock stock have a median target of 210.00p, with a high estimate of 265.00p, and a low estimate of 180.00p, according to the Financial Times. The median estimate represents a potential upside of 17.91% compared with last week’s close at 178.10p, while the high forecast suggests a potential upside 48.8%.

Among nine analysts covering the company, the stock has one ‘buy’, three ‘outperform’ and five ‘hold’ recommendations which point to a consensus hold and a positive outlook overall. Backed by the company’s recent figures, and coupled with analysts’ upbeat outlook, Ibstock appears to be well-positioned to ride out the economic uncertainty.