The Ibstock (LSE:IBST) share price hasn’t been performing particularly well over the last 12 months. In fact, it’s only up by around 9% and still trading firmly below pre-pandemic levels. But is this all about to change? Let’s take a closer look at rising trends and see whether I should be adding this business to my portfolio.
The hidden potential of the Ibstock share price
Ibstock is a leading UK manufacturer of building materials. It primarily focuses on producing clay bricks and other concrete-based products through its network of 16 manufacturing sites and 18 active quarries. This is hardly the most exciting business out there. But there are some promising signs of an imminent surge in demand for these types of materials.
The pandemic significantly hampered the residential construction industry, with many projects being postponed. This naturally led to a sudden collapse in demand for materials like bricks. And so I’m not too surprised that the Ibstock share price fell by nearly 50% within the first three months of 2020.
However, thanks to the rapid rollout of vaccines, construction sites are once again becoming active. And so the demand is back on the rise. This is undoubtedly good news for the company, especially since the existing shortage of bricks has granted the firm some pricing power.
I believe this will definitely accelerate Ibstock’s recovery. But its growth potential doesn’t end there. The UK has been in short supply of bricks for almost a decade as national manufacturing capabilities have been unable to keep up with accelerating home construction efforts. Until recently, many bricks were imported from Europe. But following Brexit, this import process has proven to be challenging and is subsequently pushing up the price of this material even further.
Given roughly 80% of new build properties use clay bricks and the need for additional housing doesn’t appear to be slowing, my opinion is that Ibstock’s share price is heading for sustained, long-term growth. What’s more, its first-quarter results for 2021 indicates this growth already starting as sales volumes came in higher than expectated.
There is a risk of a slowdown
Ibstock has already begun expanding its production volume capabilities at its Atlas facility. However, as more companies follow suit, it may lead to an oversaturated market, especially if the demand for housing begins to fall.
The latter is particularly concerning as government support schemes like Help-to-Buy are coming to an end in the near future. If the affordability of new-build properties starts to waiver, homebuilders will likely slow their construction efforts. This, in turn, will lead to lower demand for bricks. Needless to say, this wouldn’t be good news for the Ibstock share price.
But all things considered, even with the potential risk of a slowdown, I believe Ibstock is in a prime position to grow over the long term. And so I’m definitely considering it as a potential addition to my portfolio.
