Consolidating housebuilding suppliers
Brickability is a leading supplier of bricks and other building materials to the UK construction industry, and is well-positioned to consolidate the fragmented UK building products supplier space. The company has undertaken four acquisitions since its IPO in 2019, which adds to some twelve acquisitions carried out previously in the years since it was founded in 1984. As a result of this acquisition process, the group has branched out from its core bricks and building materials distribution into the adjacent areas of roofing products and services as well as heating, plumbing and joinery. These moves make compelling strategic logic, as the divisional businesses enjoy a common customer base, and hence provide a simpler procurement process for its customers. Further, the new areas also enjoy significantly higher margins.
The political backdrop and market dynamics are favourable, as evidence by the strong construction data for March that was released last week - the IHS Markit/CIPS UK Construction Puchasing Managers' Index is at its highest level in more than six years, with the housebuilding category performing strongest, boosted by the government's extended stamp duty holiday.
Brickability's growth strategy has four components - like for like growth, geographical expansion, acquisitions and product range expansion. As a result of its growth strategy, the group is able to offer a one stop shop - it can supply housebuilders with most of the components required for building a house, and it does this on a national level. further, the group has established strong relationships with both UK and European manufacturers. In the case of brick manufacturers, a manufacturer will typically give the group an indictive allocation of bricks each year and as a consequence, Brickability does not have to hold significant stock. This security of supply is one of the reasons housebuilders choose to partner with Brickability as the assurance assists them to complete projects on time and within the budget.
Strong track record of growth and profitability
Brickability has an excellent track record of growth and profitability, with a revenue CAGR of 15.7% over the last three years, prior to the impact of the pandemic, and EBITDA margins in the low double figures. Further, the group has a strong balance sheet with net bank debt at a modest £2.5mln as at 30 September 2020 and total net debt, including leases and deferred consideration, at around £12.8mln, or 15% of net assets. While the current year will show declines in revenue and profitability due to the COVID-19 pandemic, management noted in February that the group had continued its strong recovery and the government's lockdown measures since November 2020 have had little material effect on trading.
Leading supplier to housebuilders
Source: company accounts
Brickability is a leading supplier of facing bricks, blocks, rainscreen cladding systems, architectural masonry, roofing tiles and slates to the UK construction industry. Customers are mostly small and mid-sized housebuilders but the group has a growing share with larger housebuilders. Brickability has built a highly valued reputation over 37 years, delivering high-quality building materials to the construction industry, and has an experienced management team.
Building supplies industry leader
Brickability offers a complete solution to its housebuilding customers on a national basis, which gives it an advantage over the bulk of its building supplier competitors. It joined AIM in August 2019 to increase its profile and strengthen its balance sheet, raising £57mln before expenses in the process. A primary objective for the group is to consolidate the mid-market housing building supplier space and, following the listing, we believe that Brickability is in an excellent position to carry out this goal.
Attractive investment case
The company has generated a c 16% revenue CAGR over the last three years, while EBITDA margins have remained above 10%. The group delivered organic growth of 8%, 16%, 16% and 1% in the four years to 31 March 2020. In addition, the business is highly cash generative, with operating cash flows before movements in working capital of £17.4mln in FY19 rising to £21.0mln in FY20. Free cash flow stood at £17.8mln in FY19 and dipped to £8.1mln in FY20, partly due to interest costs which have since abated.
Strong track record of growth, profitability and cash generation
The management team holds more than a 50% interest in the business. Alan Simpson, CEO, along with his wife hold a 21.9% stake, while Paul Hamilton, managing director of the heating, plumbing and joinery division holds a 13.4% interest and Arnold Bernard Gerardus Van Huet, managing director of Crest Group, a unit of the bricks and building Materials division, holds a 5% stake.
Management is aligned with stockholders’ interests
The industry has benefited from a favourable political backdrop, as the UK government has sought to dampen the impact of the COVID-19 pandemic via the suspension of stamp duty, which has been extended until the end of June (and tapered down to the historical threshold from October), along with the long-running help-to-buy scheme.
Favourable political backdrop
There are excellent opportunities to grow the business both organically and via acquisition. The former is largely about cross-selling products to existing customers while the latter is about increasing geographical coverage and broadening the offer to the mid-market.
Good growth opportunities
The group has acquired some sixteen businesses including four since its IPO on AIM in August 2019, which were acquired at favourable valuations. Further, Brickability has established an excellent track record of integrating businesses and additional acquisitions are planned - management is looking at a pipeline of opportunities.
Excellent track record of integrating acquisitions
Leading supplier of bricksCompany description
Headquartered in Bracknell, Berkshire, Brickability is a leading supplier of facing bricks, blocks, rainscreen cladding systems, architectural masonry, paving, roofing tiles and slates to the UK’s construction industry. The group has been supplying materials to both private and commercial specifiers, contractors, developers and builders for more than a quarter of a century. The group distributes, and in some cases installs, building materials from major UK and European manufacturing partners, providing product solutions to both private and commercial specifiers, contractors, developers and builders. The groups' businesses are focused around three core product areas; Bricks and Building Materials, Roofing Products and Services as well as Heating, Plumbing and Joinery. Importantly, the group has national coverage.
The group sources its brick products from seven suppliers in the UK, including the four largest being Ibstock, Forterra, Wienergerber and Michelmersh, along with a number of producers across Europe. The Towelrads business’s principal manufacturer is based in Turkey with further supply coming from Italy. The group seeks to increase the diversity of suppliers to strengthen the product varieties available to customers and to ensure it continues to reduce any potential supply chain risks.
Customers include regional housebuilders, small builders and contractors and increasingly large housebuilders. Indeed, FTSE-250 housebuilder Bellway is the group's largest customer while Barratt Developments, Taylor Wimpey, Redrow and Vistry Group (formerly Bovis Homes) are all customers.
A Complete Solution for the Construction Industry
Source: Brickability 2020 annual report
Raised £53.7mln after costsInitial Public Offering
Brickability joined AIM via an IPO in August 2019, with the purpose of raising the group's profile and strengthening its balance sheet. The company raised approximately £56.7mln before expenses (£53.7mln after costs) in the IPO. This was structured as £46.1mln for the company and a management subscription representing £10.6mln in the form of the release on the company of the obligation to repay certain loan notes. The new money raised was £56.7mln.
EBITDA guidance upgradeFebruary trading update
In February, the company said it expects to report adjusted EBITDA of at least £16mln for the full year to 31 March 2021. December trading was stronger than the previous year and January's performance was good, though February was tough for the building industry as the lockdown ran on. As the group produced £8.0mln adjusted EBITDA in the first half, this would indicate at least £8.0m in the second half, which compares to £9.1mln in the second half of the prior year. At the time of the interims in November, the company said it expects to report full-year adjusted EBITDA of at least £15mln. The reason given for the £1mln upgrade was a continued strong recovery and rigorous cost control, noting that there are a lot of flexible costs in the business. Also, the performances of some acquisitions have been better than expected. Management said that the lockdown measures since November 2020 had little material effect on trading and it had seen no negative impact to its trading arising from the UK’s departure from the European Union. Indeed, Brexit preparations were extensive and involved the purchase of McCann in December to secure the logistics and supply lines from European-based suppliers. Management believes the market for its products is continuing to improve and the fundamentals for housebuilding remain strong, noting the healthy building industry corporate results. Management is currently in discussion with a number of potential acquisitions and is also working on developing its organic growth plans.
Recent trading history
Source: company accounts
Reduces complexity, saves costsKey strengths established as a distributor
Specialist product knowledge
Brickability has specialist knowledge of construction material products and long term relationships with suppliers and manufacturers. The group currently has approximately 170 sales people who have developed knowledge of the products which housebuilders require. According to Brickability, housebuilders have in recent years been reducing the number of procurement staff retained in order to reduce overhead costs while manufacturers have similarly reduced the number of sales staff employed in an effort to protect margins. Clearly, this trend plays to the advantage of Brickability.
Certainty of supply
As the group has established strong relationships with brick manufacturers over many years, it is given each year an indicative allocation of bricks produced by a manufacturer. Consequently, Brickability does not have to hold significant stock on its balance sheet. This annual allocation and the security of supply it provides is one of the reasons housebuilders choose to partner with Brickability as the assurance assists housebuilders in their endeavours to complete projects on time and within budget.
Established with scale
The group is able to assist customers by offering both a large variety of products through its various divisions, subsidiary companies and physical stocking depots in local locations. Consequently, a customer can see a sales person from Brickability and have products presented from several brick manufacturers including imports rather than having to see eight or nine separate salesmen. The same scale advantage can be demonstrated across the Heating, Plumbing and Joinery division.
Organic, geographic, acquisitions and product expansionStrategy
The group's growth strategy has four components: Like-for-like growth, geographical expansion, acquisitions and product range expansion. The goal involves levering the combined expertise of the group's individual businesses to optimise revenue growth and profitability.
Organic growth
The group delivered organic growth of 0.6% in the year to March 2020. From FY16 to FY19, the growth rates were 8%, 16% and 16% respectively. The plan involves increasing national penetration of products, cross-selling across its business units and divisions and designing, developing and introducing new products to market. The group continuously seeks new products and suppliers to service the demands of customers.
Geographic expansion
Geographic expansion is likely to be initially focused on areas where the group currently has a smaller market share. There remains a number of geographic areas which are still underserved by the group, such as the south coast of England and northern England, and management believes these areas offer significant opportunity for future expansion. The group also plans to expand its existing supplier base in Europe with a view to both reducing its reliance on existing suppliers and providing additional products for customers. As the group grows geographically, the Directors believe that the Group will benefit further from economies of scale which is expected to have a positive effect on the profitability of the group.
Acquisitions
Management is examining a pipeline of acquisition opportunities. The plan is to utilise the group's national platform to consolidate the fragmented brick and building material supply market. The aim is to acquire services and products complementary to the group’s existing offering or to provide geographic expansion into areas of the UK where the group has a slimmer presence. A key component of the group’s acquisition model is to retain existing staff and incentivise management. The directors believe that they would be able to improve the profitability of acquired businesses through the group’s supply chain, existing sales network and exposure to Brickability’s product and market expertise. The acquisition strategy is focused on the UK. Management is determined not to overpay for acquisitions and the four deals since IPO have all been at favourable valuations.
Product expansion
The goal is to broaden the range of products through supplier relationships. Product expansion can also be achieved through the acquisition strategy.
Strategy table from the 2020 annual report, prior to the latest two acquisitions
Source: Brickability 2020 annual report
Company history
Brickability was established by Peter Milton and Colin Lunnon in Bridgend, South Wales, in 1984. The company opened a second site in Maidenhead in 1986 and a third in Hereford in 1995. Alan Simpson joined the group in 1988 and became a director in 1996. The company acquired 50% of Apex Brickcutters in 2004 and in 2007 it acquired The Matching Brick Company and Charterhouse Construction Materials. In 2008, it acquired the trade and assets of Moore Scott & Co and in 2010 it acquired Plansure Building Products. That was followed by the acquisitions of Brick Services and Brick-Link in 2013. In 2016, Alan Simpson led a management buyout of Brickability from Peter Milton, supported by Promethean Investments. Alan Simpson introduced the strategy of expanding and diversifying the group’s revenue streams. In March 2018, the group acquired Crest Brick Slate & Tile and Crest Roofing, expanding the business into roofing. In the same month, Brickability acquired Towelrads, Frazer Simpson and FSN Doors, expanding the business into specialist windows and doors, heating, plumbing and joinery. Later that year the group acquired CPG Services and in 2019 it acquired Brickmongers. The group moved its head office from Bridgend to Bracknell, Berkshire in 2019.
History and development
Source: Brickability AIM admission document
Four acquisitions since IPOPost IPO acquisitions
In February 2020, the group acquired McCann Roofing Products for a total cash consideration of £2.75mln, or around five times historical earnings. Based in Grays, Essex, McCann is a specialist importer and distributor of natural and man-made building products, focused on roofing. The acquisition increases and diversifies Brickability's European material supply as well as product range and expands the distribution of the group's roofing products into new regions across the UK.
In March 2020, the group acquired U Plastics for a total consideration of up to £6.0mln, or around 6x historical earnings. U Plastics is a merchant for fascia, soffits and guttering, external cladding, and ancillary products. Based in Suffolk, U Plastics serves a network of customers primarily across East Anglia, Central England, London, and the South East. The acquisition increases and diversifies the group's product range and geographical presence.
In December 2020, the group acquired Bathroom Barn for a total consideration of £645k, or three times historical EBITDA. Based in the West Midlands, Bathroom Barn is a supplier of radiator valves, elements and traditional valves to distributors and retailers. Bathroom Barn has been integrated into the Towelrads business and boosts the group's product offering in this area.
Also in December 2020, the group acquired McCann Limited, a transport and logistics business, for a total consideration of £1.75mln, or around four times historical EBITDA. Based in Immingham, Lincolnshire, McCann operates a fleet of over 100 trailers, tautliners and flatbeds, and offers European haulage and freight service, UK nationwide road haulage and express logistics. The acquisition of McCann is important since it provides the group with proprietary transport and logistics operation, securing its own supply lines and reducing Brexit related risk.
Details of post IPO acquisitions
Source: regulatory news
*Pre-tax profit.
13 businesses in 24 sites nationallyBricks and Building Materials (77% of FY20 group revenue)
This division consists of thirteen businesses operating from twenty-four sites. The division is the largest distributor of bricks in the UK, distributing around 300m bricks per year, or around 12% of the UK total. Around 200mln of these are UK made, with Ibstock the group's largest supplier, and the balance is made overseas.
The division's business units are as follows:
Brickability Brick Merchants - a UK market-leading supplier of facing bricks, blocks, rainscreen cladding systems, architectural masonry, paving products and roofing tiles to the construction industry. Established in 1984, it was the original brick factoring business of the group and has stocking depots in Bridgend and Cardiff.
Apex Brickcutters - a special shapes brick supplier manufacturing brick slips, brick arches and other types of special shaped bricks, along with cast stone. Based in Surrey, it has been operating for more than 20 years.
The Matching Brick Company - based in the South West, with stocking yards in Bristol, Swindon and Newport, it is a supplier of high quality facing bricks to national and independent builders’ merchants, trading builders and retail customers through the group's regional stocking branches, and to architects, developers and contractors.
Bricklink - a supplier of brick, cladding systems and walling stone in North of England and Scotland, servicing the specification, contractor and developer sectors
Brick Services - formed in 1990, it has grown steadily to become a major brick distributor in the North of England. The business sells into the developer, specification and builders merchant market and has built up strong relationships with specifiers throughout Northern England.
Plansure - based in Salisbury Wiltshire, it manufactures bespoke concrete products, brick arches and an exclusive flint block walling system.
LBT Brick & Facades - previously named Lancashire Brick and Tile, the Bolton-based business has evolved to become one of the leading UK specialists in the supply of quality façade materials nationally.
Crest Brick Slate & Tile - supplier of bricks, roofing tiles and aerated concrete blocks based in Howden, East Yorkshire.
CPG Building Supplies - Lancashire based business supplies a wide range of building and architectural masonry for large and small construction projects.
BrickMongers - Hampshire based business specialises in supplying external building materials from bricks to cladding, architectural stone, prefabricated arches, chimneys and brick slip panels as well as landscaping Products.
Bespoke Brick - one of the UK’s leading importers and distributors of first quality clay facing bricks, with production partners in Holland, Belgium, Italy and Germany.
Alfiam Building Supplies - Surrey-based business is the group's brand new builders’ merchant/timber division.
In addition, the McCann transport and logistics operation that was acquired in December is included in this division.
The division, despite being the largest and most established, is the fastest growing. However, it has the thinnest margins of the three divisions at roughly half the level of the other two divisions. Additionally, the division was the most resilient in the first half, with revenues down 20% and EBITDA 14% lower.
Bricks and Building Materials trading history
Source: company accounts
Bricks and Building Materials businesses
Source: Brickability
Four businesses from three sitesRoofing Products and Services (9% of FY20 group revenue)
This division consists of four long-established roofing contractors which serve the south east area of the UK, operating from three sites. The businesses offer a supply and fix service and are members of The National Federation of Roofing Contractors and certified members of Safety Schemes in Procurement (SSIP). They combine traditional roofing skills with modern practices, using the latest products and systems which enables the group to undertake a wide range of contracts including new and refurbishment work for private individual clients, regional and national housebuilders, construction companies and local authorities.
The division has attractive EBITDA margins typically exceeding 20%. However, it was the worst hit in the first half, with revenues down 49% and EBITDA 53%. This was due to the roofing industry taking extra safety precautions during the COVID-19 pandemic.
Roofing Products and Services trading history
Source: company accounts
Roofing Products and Services businesses
Source: Brickability
Four businesses from four sitesHeating, Plumbing and Joinery (14% of FY20 group revenue)
This division consists of four businesses, all of which are based in Bracknell, Berkshire. Towelrads offers towel rails and designer radiators. The acquisition of Bathroom Barn in December has been integrated into Towelrads and added a site in the West Midlands. Frazer Simpson offers a range of timber, aluminium and UPVC windows and doors, from traditional styling to modern contemporary along with the option of installation services. FSN Doors offers a diverse range of internal doors, from traditional styling to modern contemporary. DSH Flooring works in close partnership with developers, interior designers and architects to provide floor coverings complemented with an installation and fitting service.
The division has attractive EBITDA margins typically exceeding 20% and the strongest in the group in FY20. However, in the first half it saw revenues fall by 23% while EBITDA slipped by 16%. Consequently, EBITDA margins moved even higher in H1 to 25.2%.
Heating, Plumbing and Joinery trading history
Source: company accounts
Roofing Products and Services businesses
Source: Brickability
Housing starts growing consistentlyMarket environment
The UK housebuilding market has grown consistently in recent years, underpinned by population growth. Housing starts have grown from around 114,000 in 2009 to some 198,000 in 2019. Despite this growth, the housing market continues to be structurally under-supplied, with housing starts below household formations.
According to the Office for National Statistics website, between 2018 and 2028, the number of households in England is projected to grow from 23.2mln to 24.8mln, an increase of 7.1% (1.6mln). This equates to an average of 164,000 additional households per year. The number of households is projected to increase by 16.2% to 27.0mln in 2043.
UK housing starts
Source: UK government
Favourable political backdrop
UK construction activity accelerated in March, with the IHS Markit/CIPS UK Construction Purchasing Managers’ Index rising sharply to 61.7 from 53.3 in February and 49.2 in January. This is the highest reading in more than six years, and well ahead of expectations. Housebuilding performed strongest, at 64.0, boosted by the extended stamp duty holiday.
The UK housing market has performed well during the COVID-19 pandemic, underpinned by a stamp duty tax break which Chancellor Rishi Sunak extended for up to six months for some home-buyers in the Budget statement in early March. In July 2020, the government suspended stamp duty on properties worth up to £500,000 and reduced the rate on pricier homes. That support, which was due to be stripped away at the end of March, has been extended at a declining band. The current £500,000 nil-rate band in England and Northern Ireland will apply until 30 June. Between 1 July and 30 September, it will be reduced to £250,000, and then from 1 October, the previous threshold of £125,000 for home movers will be reinstated.
Another policy helping shield the housebuilding industry from the economic impact of the pandemic has been the long-running Help to Buy scheme. A pared-back version came into effect this month, restricted to first-time buyers.
Two large UK factorsCompetition
Brickability has many competitors in the building materials space ranging from specialist distributors in bricks, roof tiles, towel radiators, flooring, doors and other products to major builders merchants
The group also faces ongoing competition from brick manufacturers as housebuilders, notably larger players, occasionally acquire directly from brick manufacturers rather than from a factor. Brickability also supplies a proportion of UK brick and other building products to the builders’ merchants channel, with this market spread across a range of large and smaller players. The company does not expect this to change materially as the volumes required by smaller builders tend to be aligned to the repair, maintenance and improvement (RMI) market and are typically purchased through merchants.
At the time of the IPO, Brickability estimated that 55% of brick consumption in the UK is by housebuilders, with the remainder used in the RMI and commercial specification sectors. The majority of RMI bricks are sourced through builders’ merchants, while housebuilder brick consumption is estimated to be sourced 53% through factors and builders merchants with the remainder being sourced directly from manufacturers.
Brickability's key advantage is that it offers a one-stop-shop - it can supply housebuilders with most of the components required for building a house, while few of its competitors can do this. Additionally, the group has strong relationships, not just with UK manufacturers, but also with European manufacturers.
Organic CAGR of around 10%Financials
Brickability has an excellent track record of growth and profitability, with a revenue CAGR of 15.7% over the last three years, prior to the impact of the pandemic. This includes organic growth of around 10% per annum along with the impact of acquisitions. Group EBITDA margins have been fairly stable, at just above 10%. IFRS 16 (leases) was implemented in FY19 and boosted FY19 group EBITDA by £487k and the margin by approximately 30bp's in that financial year. The FY17 and FY18 data in this report are taken from the AIM admission document and are from unaudited management accounts given varying subsidiary year ends.
Four year trading history
Source: company accounts
Recovery from pandemic began in Q2Interim results
Group revenues slipped by 23.2% to £75.3mln, reflecting a like-for-like revenue decline of 32.4% along with the impact from acquisitions. The group reported a good recovery in the second quarter, following a difficult first quarter, which saw April pretty much wiped out and a slow start in May. The recovery took hold in June and some parts of the business performed ahead of 2019. Cost control was rigorous, noting that there are a lot of flexible costs in the business. Consequently, the decline in adjusted EBITDA was limited to 22.7% to £8.0mln as the group gross margin rose by 150bp to 21.0%. An interim dividend of 0.8678p per share was declared.
After the period end, the company spent £3.85mln on a new 63,000 sq. ft warehouse in Warwickshire to fulfil the requirement for additional warehousing in the Heating, Plumbing and Joinery division. The investment was funded through the group's existing bank revolving credit facility.
Revenue and profitability
Source: company accounts
Cash generative businessCash flow
While operating cash flow before movements in working capital fell 28% to £8.1mln in the first six months of the year, the group generated a free cash inflow of £1.5mln in the period compared with a £3.4mln outflow in H120 (prior to the strong H2 inflows in 2020). This was mainly due to a sharp reduction in interest and tax payments. Working capital movements remained negative due to the fall in sales at the end of March and a full sales month in September 2020, which resulted in the debtor book increasing at the period end while creditor payments were normalised following the staggered payments at 31 March during lockdown (suppliers were only paid once the group received payments from customers). The free cash inflow was reflected in the reduction in overall net debt position, though the net bank debt position of £2.5mln swung around by £4.9mln due to the payment of deferred consideration, which is reflected in the overall position.
Cash flow statement
Source: company accounts
Solid balance sheet positionCapital structure
The £53.7mln net proceeds raised in the IPO in August 2019 dramatically reduced the gearing in the business, as seen in the bottom row in the table below. Indeed, since the IPO, the group has continued to reduce its gearing, and cleared all short-term debt, on the back of healthy operating cash flows. We have included IFRS 16 leases and deferred considerations in our leverage calculations.
Balance sheet position
Note: Deferred consideration amounts as at September 30, 2020 are assumed based on the £6.4mln payments made during the first half, as stated in the interim accounts.
Source: company accounts
Executives hold more than 50%An experienced management team
Mr Simpson, chief executive, has been involved with the group since 1988 while Mr Mellor, managing director of Bricks Division, has been with the group since 1995. The company seeks to retain the management of acquired companies and divisional executives, Messrs Hamilton, Pearson, Van Huet and Wilson, all joined the group through acquisitions in recent years.
The management teams’ interests are closely aligned to the success of the company, with executives and the board holding a total interest of more than 50% in the company. Alan Simpson, chief executive, holds a 15.9% stake. Paul Hamilton, managing director of Heating, Plumbing and Joinery Division, holds a 13.4% stake. Arnold van Huet, managing director of Crest Group, holds a 5.0% stake.
Senior team
John Richards - Chairman
John joined the Brickability in March 2018 as chairman. He joined the building materials industry after completing a graduate traineeship with the Delta Engineering Group. He served at Ibstock Brick for 31 years as sales and marketing director, director and general manager and as managing director of several of the group’s subsidiaries. He now also serves as chairman of ADF, a leading supplier of trailers and logistics to the TV and film industry, Chairman of JR and M Investments, a supplier of finance to contractors and is a Director of Birmingham Moseley Rugby Club.
Alan Jonathan Simpson - Chief Executive Officer
Alan joined Brickability in 1988, having spent five years prior in building materials distribution at Taylor Maxwell. He became Brickability sales director and a shareholder before graduating to the position of managing director. He founded Towelrads, Frazer Simpson and FSN Doors, all of which are now part of the group. Alan became a director in 1996 before stepping up to chief executive officer following the successful management buyout of Peter Milton, the founder of the Brickability business, in September 2016.
Mike Gant - Interim CFO
Following the sudden and very sad death of the group's CFO, Stuart Overend, in November 2020, Brickability appointed Mike Gant as interim CFO. Mike is a highly experienced CFO, most recently having served as group CFO at Walker Greenbank PLC, a role he had held since 2014. Prior to that, he served for five years as finance director GB & International for Britvic PLC.
Simon Jess Mellor – Managing Director of Bricks Division
Simon joined Brickability in 1995 as a Wales sales manager and was appointed managing director of The Matching Brick Company in 2007 and of Brickability Limited in 2009, overseeing a number of acquisitions and developing relationships with European suppliers. Simon has over 30 years’ experience in the brick market. He first gained experience in brick manufacturing at Steetley Brick as a regional sales manager.
Paul Michael Hamilton - Managing Director of Heating, Plumbing and Joinery Division
Paul is currently managing director of Towelrads, DSH Flooring, Frazer Simpson and FSN Doors. Paul has over 15 years’ experience in the heating and building supplier market, having joined the Towelrads business in 2004. He became a shareholder and director of Towelrads in 2008 and oversaw the growth of the business from annual sales of less than £1mln to over £26mln. He led a management buyout of the Towelrads business in 2016 and also was a founder of DSH Flooring.
Simon Pearson - Managing Director of Roofing Division
Simon has over 35 years of construction and roofing sector experience, having first joining the industry in 1981 and setting up his first roofing business in 1984. He formed Crest Building Products in 1989 and Crest Roofing in 1993, which became part of the group in 2018 and has been managing director of the Roofing Division since.
Arnold Bernard Gerardus Van Huet – Managing Director of Crest Group
Arnold is managing director of the Crest Group of companies within the group. Arnold has over 35 years experience in the brick and tile market across Europe, having been heavily involved in import and exports markets and the development of many brick and roofing products in Europe. He was the founder of the Crest Group of companies over 30 years ago which 24 became part of the group in 2018. He has also held senior and board positions in Desimpel Brick plc, Hanson Brick and Enhobel plc.
Andy Wilson - The Bespoke Brick Co-Managing Director
Andy joined the board of Brickability Group in May 2019 and is currently managing director of The Bespoke Brick Co Ltd. Andy joined the brick industry in 2004 after graduating with 2:1 BA Hons from Nottingham Trent University. Andy served as regional sales manager for Traditional Brick & Stone Ltd before joining Wienerberger as southern specification manager. In 2014 Andy founded The Bespoke Brick Co Ltd, followed by The Brick Slip Business Ltd in 2016. He later co-founded William Wilson Properties Ltd in April 2019.
Sensitive to economic downturnsSensitivities
We highlight the following sensitivities:
Economic slowdown - the construction industry is highly sensitive to economic slowdowns, as evidenced in the early 1990s and the global financial crash of 2008/2009. Brexit could result in a more volatile economic cycle in the UK.
Government regulation - there is a risk that a future UK government could be less supportive of the construction industry, such as in the areas of taxation/stamp duty and the help to buy scheme.
Retention of talent - failure to attract and retain individuals with the right skills, drive and capability may impact the group's ability to meet performance expectations.
Competitive environment - intensifying competition might put pressure on margins.
Customers and suppliers - the loss of a key trading partner could adversely impact business performance.
Employment status of sub-contractors - there is a risk that the HMRC could change their view on labour only ‘sub-contractors’ employment status. A change could have a significant adverse impact on overheads in the short term for business units using such contractors.
Modern Methods of Construction (MMC) - the rise of MMC, or the factory construction of modular units for subsequent on-site assembly, could reduce demand for building products.
Extreme weather - excessive rain and flooding or snow can have a material impact on clients’ construction sites and hence adversely affect the business.
Acquisitions - there is implementation risk in the acquisition strategy, though management has done an excellent job of integrating recent acquisitions.
Attractive metricsValuation
Brickability has a market capitalisation of £190.1mln (at 82.5p) and a total net debt position of £12.8mln, which equates to an enterprise valuation of £202.9mln. Noting the guidance of at least £16mln EBITDA for the current financial year, this puts the stock on a maximum of 12.7x EBITDA. Should the business should return to FY20 levels of revenue and profits (EBITDA of £19.5mln, revenue of £187.1mln and adjusted EPS of 4.03p) the stock would trade on 10.4x EBITDA, 1.08x sales and 20.5x earnings. The current economic trends, exemplified by the IHS Markit/CIPS UK Construction Purchasing Managers’ Index for March, indicate there is a high likelihood of a strong upswing in the current financial year.
Peer analysis
Note: Pricing as at 9 April. *Includes deferred consideration. **Recently renamed from Polypipe.
Source: regulatory news and market sources