10.03.2025
Forterra Group – this Wednesday the UK’s second biggest brick maker will report its 2024 results, they will not be too good, however, analysts see a big recovery this year, which should boost confidence in its shares, now 162p
The chances are, you are never far from a building or structure built using
products.
This company proudly proclaims that:
“Our purpose is to help create lasting legacies.
We create bricks, blocks, precast concrete, paving and many other vital products that keep Britain building.
We provide the building products that help our customers and communities prosper – from the initial groundwork through to the finished build.”
The Business
The Northampton-based business, which was founded in the 1960’s as Hanson’s UK building products division, today has nationwide coverage.
It has some 1,600 employees and 15 factories, while its expertise lies in building products made from clay and concrete.
Its portfolio contains some of the most recognised and respected names in the construction industry.
Some of them, such as London Brick and Butterley, date back to the 19th century while others, such as Ecostock and Formpave, are far more recent; but whether historic or modern, traditional or cutting edge, they all have the needs of the 21st century at core.
Forterra is engaged in the manufacture and sale of bricks, dense and lightweight blocks, precast concrete, concrete block paving, and other complementary building products.
It operates through three segments: Bricks, Blocks, and Bespoke Products.
Its Bricks segment is engaged in the manufacturing and selling of bricks to the construction sector.
Its Blocks segment is engaged in the manufacturing and selling of concrete blocks and permeable block paving to the construction sector.
Its Bespoke Products segment is engaged in manufacturing and selling of bespoke products to the construction sector, its range includes precast concrete (marketed
under the Bison Precast brand), chimney and roofing solutions, each of which is made-to-measure or customised to meet the customer’s specific needs.
The precast concrete flooring products are complemented by its full design and nationwide installation services.
Finals Trading Update
On Thursday 23rd January this year, the group provided a Trading Update for its 2024-year, reporting a modest improvement in trading conditions in the final months of the year.
The 2024-year revenue was in line with the prior year at c.£345m (2023: £346.4m), with a double-digit increase in H2 revenue relative to both the prior year and H1 24.
The group benefited from volume gains in some of its concrete products with brick volumes flat year-on-year.
The company continued to maintain pricing discipline with selling prices remaining relatively stable across its product range.
For this year it sees signs of modest improvement in its markets, while recent heightened macro-economic uncertainty dictates that the timing and trajectory of the recovery remains uncertain.
It stated that it continued to take encouragement from the Government's ambition to materially increase housebuilding but remained wary of the challenges in its delivery.
“We look forward to the Government considering wider levers to stimulate both supply and demand for new housing and in the short-term we are watchful as to any impacts arising from the changes to Stamp Duty on 1st April 2025 which will influence housing affordability.
We continue to anticipate modest levels of cost-inflation heading into 2025, including Employers' National Insurance contributions as outlined in the Autumn Budget.
We have secured around 85% of our energy requirements for 2025 and have good levels of coverage for 2026 and 2027.
To mitigate cost increases we have announced selling price increases for 2025 with customer discussions continuing.
The Group remains well-placed to capitalise on a recovering market with our £140m programme of strategic investment in our facilities at Desford, Wilnecote and Accrington nearing completion and providing a 15% increase in brick manufacturing capacity and improved efficiency relative to the previous cycle.”
The Equity
There are some 212.80m shares in issue.
The larger holders include Vulcan Value Partners (10.97%), Lansdowne Partners (10.72%), MFS International Singapore (6.85%), Cobas Asset Management (6.16%), JO Hambro Capital Management (5.00%), Mondrian Investment Partners (4.93%),
Jupiter Asset Management (4.88%), RWC Asset Management (4.03%), Citigroup Global Markets (3.66%), Aberforth Partners (2.97%) and Fitzwalter Capital (2.90%).
Analyst View
Alastair Stewart at Progressive Equity Research, is really quite supportive.
For the year to end-December 2024 he is looking for the group to report fairly steady revenues of £345.2m (£346.4m) but with a greatly reduced adjusted pre-tax profit of £20.0m (£31.1m), with earnings per share slashed from 11.3p to 6.9p, while decreasing its dividend to 2.8p (4.4p) per share.
But that was for the last somewhat challenging year.
His estimates for this year show a bounce back to £372.8m sales, £27.5m profits, 9.5p earnings and a 3.9p dividend.
This week’s results announcement will give the analyst scope to improve his gradings for this year and then make a view on next year.
His estimates for the group’s net asset value in 2024 are for 216.4p per share and for the current year he sees a jump to 230.4p.
In My View
It is well worth noting that total UK brick consumption in 2024, inclusive of imports, is expected to have been around 30% behind 2022 levels.
So, on the basis of the group’s guidance and the analyst estimates, Forterra will have put on quite a good performance in 2024, despite market conditions.
We now anticipate market recovery this year and next, especially if Angela Rayner gets her way with easier Planning Restrictions in order to meet Labour’s 1.5m new homes Target.
I have no doubt that Forterra will soon show some good recovery in its figures, which will rub off on its shares, now just 162p, valuing the company at £345m.
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