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Best UK shares to buy: This FTSE 250 stock looks like a bargain to me!

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Ibstock (LSE: IBST) shares have been punished significantly during the stock market crash. Despite recovering to over 200p at the start of June, it is now priced at just over 150p, which is a 52% decline year-to-date. But at this price, the FTSE 250 stock now looks majorly underpriced. With its leading position in the UK as a brick manufacturer, and Boris Johnson’s recent mantra of “build, build, build“, Ibstock shares now look primed for a recovery.

Why have Ibstock shares fallen so heavily?

The recent fall in the Ibstock share price hasn’t really been surprising. Construction sites around the UK were forced to close for a couple of months, and demand has been suppressed since. The uncertainty within the UK economy has also weighed the cyclical business down heavily.

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In fact, the recent trading update clearly demonstrated the impact of the pandemic. Total revenues decreased by 36%, and the firm reported an underlying loss before tax of £11m. This was in comparison to a £42m profit last year.

The FTSE 250 stock also finished the half with net debt of £103m, which is up 66% year-on-year. While covenants have been waived, and this is not an unsustainable amount of debt, it could still hinder any future progress for the group.

What does the future hold?

Despite this recent poor trading update, there are some reasons for optimism. Firstly, it looks as if the government are going to invest more money into building homes and key infrastructure. As a market leader in the UK construction industry, Ibstock is in a strong position to profit from this initiative.

The group has also endeavoured to cut costs over this period. This includes closing three factories, slashing capital expenditures, and introducing some restructuring efforts. While this suggests that management are preparing for an extended period of reduced demand, it should also increase its long-term resilience. As a result, it seems wise to buy the FTSE 250 stock during these challenging times, in preparation for a recovery.

Will the FTSE 250 stock pay a dividend?

Excluding the special dividend, Ibstock paid 9.7p in dividends last year. At its current price, this would equate to a current yield of over 6%. While the dividend is suspended at the moment to help conserve cash, I believe that it will be reinstated at some point next year. This is provided that the firm sees sufficient demand for its products and is able to reduce some of the debt that has been added recently.

Overall, I believe that Ibstock is one of the cheapest FTSE 250 stocks on the market. Although there are a number of headwinds to overcome, it looks strong enough to cope. Hopefully, the government’s priority of building in the coming years will also lead to strong gains for the brick manufacturer. At its current price, I would say that it’s a bargain not to be missed!

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Stuart Blair owns shares in Ibstock. The Motley Fool UK has recommended Ibstock. 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.

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