Builders can’t get enough bricks but the market seems to be out of love with brick companies for some reason
There was a building materials shortage throughout the UK in 2021 and it does not seem to have improved much in 2022.
The industry has not really recovered from the Covid-19 pandemic, which proved to be a double whammy. Lockdowns limited the amount of new materials that could be produced while homeowners took the opportunity to crack on with a few home improvement projects.
At the beginning of this year, the Builders Merchants Federation (BMF) said there were relatively good stocks and availability of most products, including timber, but the supply situation was less good for bricks and roof tiles.
The BMF said domestic producers of bricks are already at full capacity, so the shortfall should continue throughout the year until three new UK brickmaking plants start producing in 2023 and 2024. That should boost the UK’s annual capacity by about 150mln bricks per year, replacing some of the production capacity that was lost in the wake of the financial crash in 2008.
In the meantime, imports will be required to meet current demand and many of these will be sourced from the European Union, with all the hassle that now entails.
The Brick Development Association has indicated that lead times will be an issue for the rest of the year. In some cases FMB members have been waiting up to half a year for supplies from manufacturers.
Meanwhile, as one might expect in times of shortage, prices of raw materials are ballooning, contributing to a rapid increase in insolvencies in the UK construction sector.
According to the Office for National Statistics, around 400 small construction businesses in the UK became ex-businesses in April alone.
So, we’ve got a shortage of domestic producers, Brexit-related and Covid-related supply chain issues, labour shortages, burgeoning demand for home improvements and rampant inflation; what else could go wrong?
Well, Russia’s invasion of Ukraine has not helped matters on the import front. It is estimated that the UK needs to import around half a million bricks each year to meet demand and this is not a situation the UK construction industry (or Britain’s brickmakers, for that matter) is happy about, not least because bricks are heavy and therefore expensive to import.
Building a new brick factory is an expensive business and ideally requires that the factory be located close to a suitable quarry.
Thus we have seen the likes of Brickability Group PLC (AIM:BRCK) acquiring Modular Clay Products Ltd (MCP), a supplier of UK and imported clay facing bricks to meet bespoke client specifications, earlier this month for £4.75mln.
Last year, it acquired Taylor Maxwell, which the broker Shore Capital said: “created a UK powerhouse in brick distribution, increasing Brickability’s buying power with virtually zero overlaps within the customer base”.
Despite this, the shares are down by around a quarter this year, even after the company raised revenue and earnings guidance for the fiscal year just ended.
Another listed brick company, Michelmersh Brick Holdings Plc (AIM:MBH), has fared little better, with its shares slumping to 94.5p from 128p at the start of the year. The company boasted back in May of “stable demand from our loyal customer and distributor relationships in all of our end markets” and said production volumes had continued in line with expectations.
Michelmersh is set to implement its next round of price increases next month, which may be a pivotal moment for the company and its margins.
Source: Proactive Investors