[source: Michelmersh Brick]
The stock market is an efficient price discovery mechanism, but not always. Why?
Well, its generally because human emotions tend to take over from rationale behaviour during periods of heightened uncertainty, such as from the Ukraine/Russian conflict and fears about a flattening yield curve.
Indeed history seems to be repeating itself across the UK building products sector, where shares in premium brick maker Michelmersh Brick (MBH ) (111p) are presently trading on a bargain basement 6.6x EV/EBITDA rating (see charts). Particularly when compared to my valuation of 145p-165p/share based on a corresponding 10x-11x 2022 multiple.
What’s more MBH posted an outstanding set of 2021 numbers this morning (re Adjusted EBITDA of £14.7m on record sales of £59.5m) - with this “positive performance continuing into the early part of 2022”.
Driven by not only strong demand from homebuilders, RMI & commercial regeneration projects. But also longer term, 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.
Elsewhere the Board is tightly managing costs, with 90% of MBH’s energy usage already hedged in this year - alongside implementing proportionate selling price rises.
Lastly given the hefty £7.7m net cash pile, there’s plenty of fire-power too to invest organically & via acquisition, whilst further hiking the dividend 46% to 3.65p.
Co CEO Frank Hanna adding: "Our positive medium-term outlook is underpinned by the quality of our product portfolio and the strength of our customer & distributor relationships. As a result, we enter 2022 with a strong well-balanced forward order book, covering multiple channels from RMI, housing to commercial, social and specification projects."
What’s not to like? The stock market is an efficient price discovery mechanism, but not always. Why?
Well, its generally because human emotions tend to take over from rationale behaviour during periods of heightened uncertainty, such as from the Ukraine/Russian conflict and fears about a flattening yield curve.
Indeed history seems to be repeating itself across the UK building products sector, where shares in premium brick maker Michelmersh Brick (111p) are presently trading on a bargain basement 6.6x EV/EBITDA rating (see charts). Particularly when compared to my valuation of 145p-165p/share based on a corresponding 10x-11x 2022 multiple.
What’s more MBH posted an outstanding set of 2021 numbers this morning (re Adjusted EBITDA of £14.7m on record sales of £59.5m) - with this “positive performance continuing into the early part of 2022”.
Driven by not only strong demand from homebuilders, RMI & commercial regeneration projects. But also longer term, 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.
Elsewhere the Board is tightly managing costs, with 90% of MBH’s energy usage already hedged in this year - alongside implementing proportionate selling price rises.
Lastly given the hefty £7.7m net cash pile, there’s plenty of fire-power too to invest organically & via acquisition, whilst further hiking the dividend 46% to 3.65p.
Co CEO Frank Hanna adding: "Our positive medium-term outlook is underpinned by the quality of our product portfolio and the strength of our customer & distributor relationships. As a result, we enter 2022 with a strong well-balanced forward order book, covering multiple channels from RMI, housing to commercial, social and specification projects."
What’s not to like?