With home ownership in England at its lowest level in more than 30 years, one might think companies supplying building materials would be hitting a brick wall.
However, the government is keen to help and its policies — accompanied by a £2.3bn housing infrastructure fund that is supposed to build 100,000 homes — should be a boon for the small-cap UK companies that produce bricks, bathroom fittings and doors.
But building materials businesses are contending with a cocktail of concerns including unsteady consumer confidence, rising import costs and a fiercely competitive trading environment.
Norcros
Norcros, which makes bathroom fittings, tiles and adhesives was hurt by Brexit-related uncertainty in the first half of 2016. Its Johnson Tiles and shower-making Triton divisions were particularly hit by weak consumer confidence. In a recent trading update, Norcros said it was reorganising Johnson Tiles, incurring a £2.3m charge as it shed 90 jobs.
However, it also said profits and revenues would be in line with expectations and up on the previous year, after better performances in the second half. Its share price rose 13 per cent on the news.
Nick Kelsall, chief executive, said rising import prices were affecting companies across the sector and that it was “a level playing field”. Norcros had increased prices from three to 10 per cent over its product range, he added. He also highlighted that Norcros had “a significant market share in private housebuild”, a sector that has recovered since the financial crisis.
Of the 200,000 new homes a year targeted by the government, he hopes his company’s appliances will go into “at least half of them — but that’s probably being a bit ambitious”.
Epwin
The Aim-quoted company makes “low maintenance building products” — extra fittings for houses, such as window systems, roof cladding, doors and decking.
Earlier this month, Epwin announced that full-year pre-tax profit was up nearly a quarter, from £18.6m to £23m. But net debt also rose sharply — up 43 per cent to £20.6m — due to an acquisition and investment in a new window system.
Jon Bednall, chief executive, said input costs had increased “as a result of the weakening of sterling since June 2016”.
However, he said, the company was optimistic that a backlog of work in its key retail, maintenance and improvement market would foster “strong potential future demand” for its wares.
Its share price is up nearly 14 per cent since the start of the month.
Forterra
The weak pound favours some. For companies such as Forterra, the UK’s second-biggest manufacturer of bricks, “exchange moves have been very positive”, said Graeme Kyle, an analyst at Shore Capital. Imported bricks have become more expensive, boosting the UK producers.
Forterra floated in April 2016, but had a rocky start. Amid falling demand after merchants had overstocked on bricks, it mothballed two kilns. Pre-tax profits almost halved in the first six months — down from £24.3m to £13m year on year.
However, in its full-year results, the Northampton-based group announced that its adjusted profit had risen 3.8 per cent year on year to £54.3m. It said brick sales volumes had increased in the second half of the year, and were rising in 2017.
With about 63 per cent of its revenues coming from new residential housing developments, Forterra is optimistic about an uptick in house building, even as repair, maintenance and improvement markets remain flat. Its share price has risen 6 per cent this month.
Shatish Dasani, Forterra’s chief financial officer, said he saw house building initiatives “as having a positive impact on our business”.
“The government has finally recognised that there’s an issue there,” he added.
