Brickability Group’s most recent financial results demonstrated robust growth at the AIM-listed construction materials distributor, which, in a challenging economic climate, must have made management feel vindicated in its aggressive acquisition strategy.
The company’s stock has a solid run throughout 2021, and despite a decrease in price year-to-date, the business (delivering rather than manufacturing building materials) is functioning, and the diversification strategy is also bearing fruit.
Brickability has taken advantage of the possibility to grow organically and through acquisitions, given there are only a handful of competitors in the brick distribution market.
Although three major brick manufacturers — Ibstock, Forterra, and the Austrian market leader Wienerberger — are also involved in distribution, their total market share is less than 40 percent.
Pure-play wholesaler The vast majority of EH Smith’s operations are concentrated in the Southeast and the Midlands.
Other large merchants, such as Jewson and Travis Perkins (LSE: TPK), are strong in retail but lack the specialized products that huge builders expect.
Taylor Maxwell, a former legitimate rival, was acquired by Brickability in June 2021 for £63 million in what was the company’s biggest significant purchase to date.
Chairman John Richards recognized a potential to enter the market for social housing through the merchant, which he described as having “far exceeded expectations.”
Brickability’s cash flow improved as a result of the acquisition, going from a £7 million deficit to a minor profit of £400,000, although Richards anticipates a return to the red the following year.
Recent preliminary results reveal a corporation in excellent financial health, with revenues growing 187% to £520,2 million for the year ending March 31. Even after removing the effect of recent acquisitions, like-for-like top-line growth was a remarkable 31.9 percent.
Meanwhile, underlying earnings (EBITDA) more than doubled to £39.5 million. Investors were rewarded with a dividend increase of 54 percent, which, at 3p per share, corresponds to a yield of 3.8%.
Other recent acquisitions have included roofing contractors Leadcraft and Beacon Roofing (located in Hampshire and Surrey, respectively) and solar panel installer HBS New Energies, which have diversified the company’s product offering beyond bricks.
Brickability acquired Modular Clay Products in May for £5.5 million post-year-end, thereby expanding its brick distribution capability.
Notable about the HBS acquisition is that it marks Brickability’s first entry into renewable energy and sustainability products.
This accretive strategy has enabled the business to “advance into new market areas, boost our import and distribution capacity, broaden our customer and client base, and grow our existing product line,” as Richards explained.
Given the ongoing brick shortage in the United Kingdom, he remarked that Brickability’s European product pipeline has received a particularly robust boost, which is doubly significant.
Historically, the company’s distribution strength has been with homebuilders, but recent business acquisitions have boosted the number of architecture, contracting, and other specification clients on its roster.
Buy and build has been the company’s approach since its IPO in August 2019, and while rigorous controls on price, multiples and deferred considerations are in place, management remains hands-off in certain regards.
We rarely alter the name above the door. If the company is worth purchasing, I assume the brand and management are solid,’ explained Richards.
Now, the difficulty is to manage these add-ons and prevent reckless expansion from burying the organization.
For Richards, this entails deferring any additional ‘transformative’ acquisitions in favor of organic growth and focusing on enhancing the company’s guiding strategies of diversification, geographical reach, and European import capabilities.
“One or two bolt-ons are in the works,” Richards noted.
Whether or whether Brickability is a UK brick distribution powerhouse, it is not immune to the macro constraints influencing supply lines and overall housing market demand.
However, it is now not as expensive to import bricks as one might believe.
Belgium and the Netherlands, the two largest European producers of bricks, are very close to the United Kingdom, and their facilities tend to be “extremely large, very modern, and very mechanical, with cheap production costs and a great deal of efficiency,” according to Richards.
And what about the housing market, which accounts for almost half of Brickability’s revenue?
“All the fundamentals for housing are still very much in place, underpinned by cross-party political support,” Richards said, adding that mortgage rates remain very low (for now).
However, Brickability’s diversification brought a degree of risk.
Brickability is now exposed to commodity-driven timber prices, which reached record highs in the summer of 2021 and have not decreased significantly since then.
In addition, increased rivalry in the roofing industry exerts downward pressure on supply prices for this industry area.
Kevin Cammack, a broker at Cenkos, believes that Brickability has performed exceptionally well in growing the firm organically and executing and integrating acquisitions.
Noting that the share price has declined over the past nine months, by the industry as a whole, he believes they are “very much as inexpensive as they’ve ever been, even though the company has made significant progress in terms of returns.”
Brickability’s hunger for transformative acquisitions may have momentarily waned, but according to Cammack, “it’s not the end of the tale” for the company’s growth trajectory.
