[source: Michelmersh Brick Holdings]
With equities seemingly falling every week, it’s easy for people to get despondent – helplessly watching their portfolios grind lower. However, long term investors recognise that lower prices also offer great opportunity.
Take the building products & RMI sector, which has experienced an indiscriminate & brutal sell-off over the past 6 months, despite delivering impressive results.
Sure there are challenges (mostly temporary). Not least, input cost inflation (eg energy), higher mortgage rates & supply chain disruption (eg China). Yet equally, these are more than reflected in today’s attractive valuations.
Take premium brick maker Michelmersh Brick (MBH ) (117p) - whose stock is trading on a modest 6.9x EV/EBITDA. Particularly when compared to my valuation of 145p-165p/share based on a corresponding 10x-11x 2022 multiple.
What’s more, MBH said today that it “remains on track to meet full year expectations”, & sees “stable demand in all its end markets”.
Driven by not only from homebuilders, RMI & commercial regeneration projects. But also government promises to construct 300k homes pa (vs 200k today), Build to Rent, the shift towards home premiumisation, recladding (Grenfell Tower), infrastructure (HS2) and re-purposing vacant retail/office space.
Certainly no sign of any major distress.
Elsewhere the Board is tightly managing costs, with >90% of MBH’s energy already hedged in this year - alongside implementing proportionate selling price rises.
Lastly given the Dec’21 net cash pile of £7.7m, there’s plenty of fire-power too for both organic investment &/or M&A, whilst further hiking the dividend 46% to 3.65p.
Meaning to me, it all looks “clear on the Western front”.