Jefferies upgrades Ibstock, Forterra to ‘buy’

Jefferies upgraded both Ibstock and Forterra on Wednesday to ‘buy’ from ‘hold’ "given the current compelling demand-supply dynamic in the UK brick sector".

The bank said it now sees a clear path to return to prior peak EBITDA (i.e. 2022) by 2027, underpinned by a housebuilding-led recovery but also sufficient spare capacity to fully capture this growth.

"This suggests more than 70% upside from 2024 profit levels, offering significantly more upside than at UK building product peers if they too were to return to 2022 levels from 2024 (less than 40%)," it said.

"This uplift is driven by our expectations of a strong demand recovery underpinned by an improving housing market (we forecast UK brick demand to grow circa +35% over 2024-27, after a circa 40% fall over 2022-24).

"However, with domestic capacity utilisation currently at c.60%, we are in a unique position where both main players have the ability to fully capture recovering demand (as opposed to driving higher imports due to capacity constraints as has been the case for much of the past decade)."

Jefferies said that beyond earnings recovery, robust cash generation and deleveraging offer another leg to the investment case, with ample spare cash for M&A and/ or extra returns.

The bank lifted its price target on Ibstock to 251p from 200p and on Forterra to 235p from 194.50p.

Jefferies said Ibstock was its preferred pick "given its greater liquidity and higher potential for M&A-driven earnings accretion to boost its still nascent Futures division".