Following yesterday's trading update from Forterra PLC (LON:FORT), Citigroup says the risk-reward balance for the bricks maker now looks less compelling.
The US bank has downgraded the stock to 'neutral' despite increasing the price target to 350p; the shares fell 5.5p to 327.5p following the downgrade.
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Citi said the trading update looked reassuring despite the dodgy weather conditions Britain has had this year.
The group's plans to increase brick production capacity by around 16% by 2022-23 is likely to support medium term volume growth while a reduction in operating costs from a new, larger facility should drive further margin improvement.
“However, capacity constraints limit near term growth prospects and we downgrade the stock to Neutral as we believe earnings momentum over the next three years is likely to be less exciting,” Citi said.
Cradley #bespoke #brick specials fresh out the kiln for @ShropshireHome1 #newhomes #construction https://t.co/weFeNBTwZp pic.twitter.com/U4RBUGn5F7
— Forterra plc (@ForterraUK) May 23, 2018
The stock has risen by 28% over the last 12 months and is currently trading on a projected price/earnings multiple of 12 based on Citi's earnings forecast.