Back in 2018, shares in brick producer Ibstock (LSE: IBST) hit an all-time high of just over 300p on the back of impressive earnings growth from the company. The UK’s booming housing market has sent demand for bricks surging in recent years, and as one of the largest companies in the market, Ibstock has been able to reap the rewards.
This year, City analysts are expecting the company to report earnings per share of around 19.8p, up a staggering 520% from 2013’s reported figure of 3.2p.
And it looks as if Ibstock is well on the way to meeting this target. A few days ago, the company informed investors that it has made a solid trading start to the year and expectations for the full year are unchanged, although it does expect earnings to be weighted towards the second half of 2019.
Thanks to its explosive earnings growth over the past five years, Ibstock has also become one of the FTSE 250’s best income stocks. It first started paying a dividend to investors in 2015, distributing 4.4p per share. Last year it paid out 16p, giving a historical dividend yield of 6.8% on the current share price.
It would appear as if this trend is going to continue. After selling its Glen-Gery US business for £76m last year, it ended 2018 with net debt of £48.4m, down from £117m at the end of 2017. This debt reduction has reduced interest expenditure by around £7m a year, which is enough, according to my figures, to pay an extra 1.7p a year to shareholders boosting the annual dividend by a little over 10%.
Considering all of the above, the company’s cash generation, earnings growth and dividend expansion, I think shares in Ibstock are a steal today as they are dealing at a forward P/E of just 12.
A unique business
This is a somewhat unique business, which is why I think it could be an excellent investment for any portfolio. Equiniti provides complex administration services for companies, such as US banking giant Wells Fargo. It agreed to acquire the bank’s share registration business for $227m in 2017 and has today announced that the integration is complete, a development management describes as an “exciting milestone” for the group.
Thanks to the contribution from this new business, Equiniti’s top line expanded by around a third in 2018. Analysts are predicting even faster growth in 2019 as the integration reaches its conclusion. The City has pencilled in earnings per share of 19.2p for full-year 2019, up 307% year-on-year.
Based on the City’s growth targets, the stock is currently dealing at a forward P/E of 11.8, which looks to me to be a steal for such a critical business.
Without Equiniti’s services, a large number of financial service companies would have to bring administration back in house, which would cost significantly more. In other words, Equiniti’s size and scale in the market gives it an edge which is difficult to replicate. On top of the company’s attractive valuation, it also supports a dividend yield of 2.6%, with the payout covered 3.3 times by earnings per share, leaving plenty of room for further growth in the years ahead.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of Equiniti. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.