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UK Housebuilders: Bricking it

Not good news for UK housebuilders today, if the AGM trading update of brick and tile maker Ibstock is anything to go by. The latter’s shares trade 6% lower on news that an extended Winter made for a slow start to the year. Volumes have begun to recover, but it still expects performance to be weighted towards the second-half, driven by new volumes from major projects in bricks and roof tiles. This suggests slower organic growth, which is a concern, as new growth involves costly investment.

But this is only part of the reason why Ibstock shares trade lower. The real bad news, and where the Housebuilders are affected, regards pricing. Unfortunately it is also two-fold.

Firstly, Ibstock says price rises are in-line with expectations. So Housebuilders are already facing higher input costs for rather important materials to house construction. Secondly, Ibstock highlights Energy costs higher than expected, and likely to continue for the rest of the year. Assuming these costs have to be passed on, in order to protect margins, this means Housebuilders may be facing even more and continued price rises.

Not great news when UK house price data is softening, amid consumer uncertainty linked to the twin threat of BoE rate rises and muddled Brexit negotiating. UK housing market fundamentals may well remain strong, but can the same be said of the outlook for Housebuilders’ profit margins? Only if house prices rise and/or costs stay manageable.

Mike van Dulken, Head of Research, 24 May 2018

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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