After a strong 2015, operationally and financially, Michelmersh Brick Holdings Plc (LON:MBH) has kept the momentum going in 2016.
If seems it is time to modify the old adage about there only being two certainties in life – death and income taxes – to include another certainty: a shortage of housing in the UK.
The strength of the UK housing market continues to impress. Figures from the Council of Mortgage Lenders (CML) indicated home owners borrowed £30.9bn for house purchases in the first quarter of 2016, up 33% year-on-year.
Only a small proportion of those loans would have been for new builds, but it underlines the strength of the housing market, as does the announcement today by FTSE 100 house builder Taylor Wimpey that “the UK new build housing market remains very positive” across most of its geographies.
A healthy and controlled lending environment is providing good accessibility to mortgages at competitive rates, while consumer demand and confidence remain high, the house builder said.
The demand for new houses, and therefore bricks, is serving Michelmersh well, with its rich heritage of brands.
The company's output rose 3% in 2015 from the year before, and the average selling price increased by 9%. This lifted turnover to £29.1mln, while pre-tax profits grew to £4.6mln from £2.6mln the year earlier.
The bricks maker generated £6.6mln in cash 2015, which means the company was sitting on a £2.9mln cash balance at the end of the year, compared with £2.1mln of debt at the start.
The payout, meanwhile, was increased to 1p from 0.5p a share.
The consensus forecast for 2016 is for Michelmersh to make a pre-tax profit of £5mln on revenue of £31.9mln, while another generous hike in the dividend, to 1.2p, is expected.
Last year's dividend was covered 4.4 times by earnings per share, and based on house broker Cenkos's forecasts for this year the 1.2p projected dividend will be covered 4.1 times by forecast earnings of 4.9.
At the current price of around 75p, the shares yield around 1.6%, which is better than most savings rates and with that projected dividend cover the divi looks, if you will forgive the pun, as safe as houses.
The company was not giving much away at its annual general meeting in May, save to say that after a very strong trading performance in 2015, the group had performed well in the first four months of the current year.
With five leading brands (Blockleys, Charnwood, Freshfield Lane, Michelmersh and Hathern Terra Cotta), the group's product is targeted at the premium sectors.
In 2015 it managed to push through price increases for the first time in some years as problems of over-supply in the industry began to unwind.
It may not pile 'em high and sell 'em cheap, but it still produces around 72mln clay bricks, tiles and paving stones a year.
The group also includes a landfill operator, New Acres Limited, that does not get a lot of attention. New Acres seeks to develop future landfill and development opportunities on ancillary land assets.
Using odd bits of land scattered around town is all the rage at the moment, and Michelmersh has that covered, selling surplus land to house builders.
The history of brick making goes back millennia, and although Michelmersh is often called upon to contribute to projects, such as London's St Pancras station, where new additions need to be constructed in keeping with the style of the older surrounding business, this is no stick-in-the-mud company, as evidenced by the introduction last year of packaging robots at its Blockleys facility in Telford, Shropshire.
Developments such as these, and the expansion of the Freshfields Lane site in West Sussex, were achieved for relatively modest outlays but lay capacity and efficiency foundations for future periods.