Ibstock offloads US business Glen-Gery for $110m

Ibstock said it had sold its US brick-making business Glen-Gery to Brickworks Limited for an enterprise value of $110m and use the proceeds to pay off debt.

The company added that it still expected to deliver adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of £121m - £125m for the year to end-December (which assumed a full year 2018 contribution from Glen-Gery of £11m).

Ibstock said it had made £3.7m from a sale of surplus land which, when combined with previously announced deals, resulted in a total EBITDA impact of £9.5m for the year and excluded from the earlier guidance.

As part of the Glen-Gery deal Brickworks Limited will assume certain liabilities, including an associated pension liability, and the net cash inflow for Ibstock was expected to be around $95m.

Ibstock said it expected net debt to be around £50m by the end of 2018 as it focused on core markets in the UK.

Chief executive officer Joe Hudson said the company had decided that opportunities to grow its US business “are not in line with our overall strategic objectives"

"This divestment augments our strong underlying cashflow generation, leaving us with a strong balance sheet,” he said.

“Our capital allocation and shareholder return priorities remain unchanged, and we continue to assess both organic and inorganic investment options in the UK as we look to deliver long term growth."

“Whilst the uncertainty around the ongoing negotiations for the UK's withdrawal from the EU persists, the market backdrop in the new build housing sector remains positive.”

Broker Peel Hunt upgraded the stock to a 'buy' from 'hold'.

"Given the healthy balance sheet, the group is now even better placed to invest in UK growth initiatives over the medium term, which could see investment in further brick and tile capacity given the tight UK supply dynamics," the broker said in a note to clients.

Investment firm AJ Bell said the Glen-Gery sale had been "well-received" and was part of Ibstock's rebuilding of its relationship with shareholders.

“The brick manufacturing sector has benefited of late from strong demand from housebuilders and falling brick stockpiles. However, Ibstock has endured a problematic 2018 thanks to a weather-related impact early in the year which put a lot of construction activity on pause and difficulties which were of its own making," AJ Bell said.

“When demand bounced back after the cold snap, Ibstock was unable to fully service it thanks to production issues at its factories."

“Although the housebuilding sector faces several challenges at present, not least a weak housing market, the volume of houses built, which is probably the most relevant factor for Ibstock, seems likely to remain high."

“Investors will be hoping today’s strategic move can set the stage for a better showing in 2019.”