A cheap UK share I am currently considering for my portfolio is Ibstock (LSE:IBST). Here’s why.
Construction boom
Ibstock is a leading manufacturer of brick and concrete products in the UK with a history spanning over 200 years supplying to the construction industry. Ibstock is the number one brick manufacturer in the UK based on the volume of bricks sold. It has 36 manufacturing sites throughout the UK and employs over 2,000 people.
There has been a construction and housing demand boom in the country despite the pandemic. UK shares in the construction industry have benefitted but due to macroeconomic pressures of late, some of these shares now look cheap or beaten down.
As I write, shares in Ibstock are trading for 204p. A year ago, shares were trading for 200p but reached as high as 239p in August. The Ibstock share price has meandered up and down somewhat in recent months linked to the weakening economic outlook of late. Since its most recent trading update at the beginning of this month, Ibstock shares are up slightly.
Why I think Ibstock is a cheap UK share worth considering
Ibstock’s Q3 trading update, announced at the beginning of November. made for excellent reading in my opinion. It confirmed that demand for its products remained strong. In addition, Ibstock announced a £50m investment into a new state of the art factory which is an ambitious growth statement. It also said it was on track to achieve full-year results as previously forecast. Ibstock also has a good track record of performance. I understand that past performance is not a guarantee of the future but I use it as a gauge nevertheless. Prior to 2020, revenue and gross profit increased year on year for three years.
The UK housing market has experienced a period of extraordinary growth since the pandemic began. An initial freeze on purchases during the first lockdown was replaced by a buying frenzy. Prices reached record highs. The government’s stamp duty holiday, which officially ended on 1 October, also aided this boost. Many UK shares involved in construction benefitted with some house builders such as Barratt recording record profits.
City analysts believe that Ibstock’s earnings will increase by over 20% in 2022. This would leave it trading on a price-to-earnings growth (PEG) ratio of 0.5 for next year. Any reading below 1 suggests it is undervalued. In addition to this, Ibstock also has a dividend yield of over 2%. The FTSE 250 index average, in which it resides, is 1.9%.
Risks
Macroeconomic issues such as the supply chain crisis, rising costs of materials, and the stamp duty ending coinciding with a rise in interest rates will affect the housing market, house builders, and suppliers such as Ibstock.
Despite the current economic outlook, I would add Ibstock shares to my portfolio for the long term. I believe at current levels it is a cheap UK share not to be missed. It possesses excellent market share in its sector, has a long history of success and growth, and continues to grow its offering too. It also pays a dividend to make me a passive income, which is a bonus.
