LONDON (ShareCast) - (Sharecast News) - Analyst at UBS upgraded Britain\'s leading brickmaker Ibstock from \'neutral\' to \'buy\' on Monday, stating the despite recent downgrades, risk-reward was now \"skewed to the upside\".
UBS said the core fundamentals of the UK brick industry, which accounted for 85% of Ibstock\'s underlying earnings, remained \"compelling\", with demand exceeding supply \"by around 15%\", which had led to high levels of margins and returns over recent years.

The Swiss broker was anticipating more than 25.0% upside in the company\'s total shareholder return following high returns over recent years.

And although that was likely to be the extent of the upside, it also believe that the downside risk was also \"relatively low\".

UBS also pointed out how Ibstock\'s concrete business had been the source of downgrades following the company\'s interim results, when the broker cut its own earnings per share estimates by around 6% on average over 2019-23.

\"On 10.5x 2020E P/E, 7.8% FCF yield and 7.6x EV/EBITDA we think shares look attractive now so we upgrade to \'buy\',\" said UBS.

However, there were also risks to its call, UBS said, in the form of a hard Brexit scenario and the potential pressure on multiples that might result, although Ibstock\'s strong balance sheet and the current imbalance between supply and demand partly mitigated those.

\"With the brick operations running at high utilisation levels, focus will be on how to generate incremental growth over the mid-term. Additional brick capacity could be a route towards this: over the next 2 years the focus is on unlocking capacity through de-bottlenecking initiatives which should unlock 4% additional capacity at a cost of £25m, based on company guidance.\"

UBS, which lowered its target price n the group from 270p to 260p, also thought more bolt-on acquisitions to complement Ibstock\'s product suite were likely and said that in the medium term, a new greenfield brick facility could also feature, although it thought that was \"likely an event for 2020\".

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