Ibstock stock rating reiterated by RBC despite profit warning

RBC Capital maintained its Outperform rating on Ibstock Plc (IBST:LN) with a GBP2.10 price target, despite cutting adjusted EPS forecasts by 31% for FY25 and 5% for FY26 and FY27, citing Ibstock-specific issues including optimistic prior guidance and technical challenges. RBC views the challenges as short-term, characterizing Ibstock as "deep value" at approximately 8x recovered P/E, and suggests investors use share weakness as an entry point, though acknowledges investor confidence has been negatively impacted. RBC indicated competitor Forterra (NASDAQ:FRTA) may be better positioned in the near term.

Analysis

RBC Capital has reiterated its Outperform rating and GBP2.10 price target for Ibstock Plc. (IBST:LN), despite a significant reduction in adjusted EPS forecasts: a 31% cut for fiscal year 2025, and 5% cuts for both 2026 and 2027. This downward revision is attributed by RBC to Ibstock-specific operational issues, namely "optimistic prior guidance and technical challenges at multiple brick sites," which the research firm characterizes as short-term problems. Consequently, RBC views Ibstock as "deep value," highlighting its current trading multiple of approximately 8 times recovered price-to-earnings, substantially below its long-term average of 12 times, and suggests the current share price weakness presents an entry opportunity for investors. However, RBC acknowledges that investor confidence in Ibstock "has taken a hit" following the profit warning. In contrast, RBC indicated that competitor Forterra (FRTA) might be better positioned in the near term, citing its "higher exposure to volume housebuilders and near-term earnings risk skewed to the upside." Ibstock also trades over-the-counter in the U.S. under the ticker IBJHF.

Key Decisions for Investors

• Investors with a longer-term horizon and tolerance for near-term volatility might consider the current share price weakness in Ibstock as a potential entry point, given RBC's view of its 'deep value' status and assessment of current challenges as temporary.
• It is crucial to monitor Ibstock's upcoming communications for evidence of resolution of its site-specific technical challenges and any revisions to its operational outlook, as these will be key catalysts for a re-rating.
• Consider evaluating competitor Forterra (FRTA) for potential near-term relative outperformance, based on RBC's commentary regarding its favorable positioning with volume housebuilders and upside earnings risk.
• The substantial 31% EPS downgrade for FY25 and the acknowledged erosion of investor confidence are significant risk factors that warrant careful position sizing and ongoing due diligence.