House broker Cenkos notes that brick maker Michelmersh Brick Holdings Plc's (LON:MBH) order book remains strong, 5% ahead of the June 30 point, and it is enjoying both lower energy costs and reduced debtor days.
It comes after last week the firm, in a third quarter update for the three months to September 30, revealed current negative trends mean it has lowered expectations for the full year, believing revenue and profit will be around a similar level as seen in 2015.
The update highlighted challenges in achieving average selling price (ASP) increases for bricks in the second half and a forced materials supplier change at its Freshfields Lane site, which will result in 2016 revenue and profit being at a similar level to 2015, said Cenkos.
"Whilst disappointing, we expect Michelmersh to maintain ASPs this year, a reflection of the company’s premium product strength in a challenging wider market."
The broker reduced its 2016 and 2017 adjusted EPS forecast by 7% and 27% respectively.
It now assume sales of 70mln bricks in 2016 with a mix change away from the higher margin Freshfields stock.
Stripping out the forecast net cash and £12mln of investment land in the balance sheet, Michelmersh trades on a highly attractive multiple of 6.7 times' 2016 adjusted price to earnings ratio, the broker added.
And it expects its original 2016 net cash forecast of £3.5mln to be met or surpassed.
"Michelmersh remains a high margin, cash generative manufacturer delivering within niches where quality rather than price is key," it said