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Brickablity reported a good set of HY results on 12th November and the following Monday, Chair John Richards, presented at a Yellowstone Advisory webinar. The initial poll indicated that c.80% of attendees were non-holders at the start of the webinar. The strong share price performance during the webinar and feedback after the event would suggest that there are now some new shareholders on the register. It was an excellent presentation and the questions were answered very thoroughly. A recording of the webinar is available here.
John started by running through a brief history of the group which began life in 1984 as a regional brick distributor head quartered in South Wales. Rolling forward to present times, the company has full national coverage and is the country’s largest brick distributor and is also the largest towel radiator distributor. Other product areas covered are roofing products, cement fibreboards, windows, internal and external doors, fascias and soffits and guttering. In all of these areas they believe they provide expertise and technical skills to their customers and upon which their reputation is solidly built.
Looking at H1 performance starting in April, which was a difficult month, they quickly returned to profitability in May and have been profitable every month since. This performance is at similar levels to 2019 with September ahead of last year. Overall revenues fell 23.2% to £75.3m with divisionally the biggest fall in roofing where revenues fell 49.3%, followed by heating, plumbing and joinery which fell 23.5% and bricks which fell 19.7%. Adjusted EBITDA fell 23% to £8.0m and PBT fell 16.9% to £5.4m. Consistent with their policy to pay out 40% of cashflows, an interim dividend of 0.8678p was declared.
Profitability has continued to improve into the second half of the year with a recovery very much V shaped. They produced a clear graph which showed how monthly sales dropped off at the end of March and then drastically in April before bottoming out in May with continual recovery since then. The main market for Brickabilty is the housebuilder sector where housing starts took a sharp fall in the second quarter. However, Q3 forecasts are showing an upward trend and management feel this is set to continue.
Brickability is investing in a new 63k sq. foot warehouse to enable expansion in the heating, plumbing and joinery divisions as well as to help a new start-up business. The company is well advanced in Brexit planning and later, during the Q&A, management stated a no-deal Brexit might impact margins but only very slightly given the contracts they have in place. The maximum tariff would be 2.5% which would be split between them and the manufacturers and there is also an opportunity to add a small price increase into a planned January increase.
The company strategy is to make bolt on acquisitions to compliment organic growth. To this end, John said that they are currently looking at a number of opportunities. However, the Government’s bounce back loans and the deferment of VAT meant that some companies they were talking to were now in a better position than earlier in the pandemic. During questions, John mentioned the clear criteria they have for acquisitions: they must be complementary, provide geographical expansion, will not pay more than 6x EBITDA and definitely won’t participate in Dutch auctions. They also don’t pay more than 60% upfront with the balance deferred and contingent on performance. When they make acquisitions they like to retain and incentivise management. Whenever acquisitions are made there is scope to improve rebates across the group, and also to improve buying prices which helps improve margins at the acquired businesses.
In terms of outlook the acquisitions are performing in-line with expectations and in one or two cases, well ahead of expectations. The fundamentals for the housebuilding sector remain strong with a clear need for more homes. There is continued support of the sector from the government. This is reflected in a strong orderbook for Brickability. They have reinstated guidance of at least £15m of EBITDA in the current year which is higher than the initiation note forecast from broker Cenkos when they floated. This also suggests the broker could upgrade again given the current forecast is £15m.
A question was asked about the rationale for a distributor to sit between brick manufacturers and housebuilders. John said that brick manufacturing resources have been cut and focussed on the manufacture of the bricks and not the sale of them. The brick manufacturers currently do not have the distribution capacity to cover all of the housebuilders. He also mentioned that Brickability offered security to manufacturers by guaranteeing purchases which was very important to managing the operations and efficiency of brick kilns. In the GFC of 2008, housebuilders had to cut their costs and staffing levels and so now do not have the resources to deal with lots of individual brick manufacturers. Brickability provides a one-stop-shop to these housebuilders and is therefore, hugely valuable to them. Operationally most of the bricks go straight from the factories to the housebuilding sites. The imported bricks are either kept in stock or delivered straight to site.
The company does not consider builders merchants to be their competitors but do believe there are two significant competitors, and both are in private hands. Brickability have about a 14% market share of all bricks distributed in the UK. The next largest distributor is Taylor Maxell headquartered in Bristol with an 8% market share. The other significant competitor, strong in the West Midlands, Staffordshire, the East Midlands and London North is E H Smith, headquartered in Solihull and their market share is around 5%.
Finally, there was a question about the shareholder register. Management in total own close to 55% of the company. This ranges from the CEO and MD of the towel rads business with the biggest percentages, alongside other directors and members of the management teams. Many of the holders were gifted shares by the founder when it was a private company. There are also some significant institutional shareholders including Liontrust, Blackrock, Canaccord, Quilter and Ruffer.
Many thanks to John and Gary for such an detailed and comprehensive presentation. It is clear from the feedback that it was very well received by the attendees.
A recording of the webinar can be found on the Yellowstone Advisory YouTube channel or by clicking here.
If you would like to receive information about future Yellowstone Advisory webinars, please email info@yellowstoneadvisory.com