Bottom Line: Ibstock rebuilding will take time

IBSTOCK Johnsen must envy Blue Circle and RMC. True, their 1992 results were hardly impressive, but both can talk - with reasonable confidence - of increasing prices, despite falling demand. And, although cement and concrete prices have fallen, the drop has been nothing like as severe as the 50 per cent suffered in bricks.

That is partly because bricks have to be manufactured - while cement and concrete are largely based on mineral extraction - and the more that are produced, the lower the unit costs. These economies encouraged brick makers to carry on churning out bricks despite falling demand. The result was stocks of 1.5 million at the end of 1992 - more than five times the 1988 level, and enough for six months' deliveries.

That problem is exacerbated by the fragmentation of the industry. The dominant positions of RMC and Blue Circle - with about 32 and 48 per cent of their markets respectively - give them significant power. Brick production, by contrast, is spread among several players - many of them general materials suppliers, such as Blue Circle, Tarmac and Marley, for whom bricks are peripheral. Despite the need for rationalisation, the only significant corporate activity has been Redland's bid for Steetley, putting it equal first with Hanson - excluding the latter's specialist fletton interests - with an 18 per cent share.

Ibstock, in third place with 9 per cent, would clearly love to see further consolidation but has been forced to settle for rationalising on its own - at the cost of a pounds 28m charge in its 1992 accounts. That pushed it pounds 27.6m into the red, compared with a pounds 10.5m profit the year before, and meant it had to cut its final dividend from 3.75p to 0.5p, for a 1p (6p) total.

Despite the loss, Ibstock remains the class act in the industry. Margins, though a shadow of their former selves, are still a better-than-average 5 per cent and its stocks are lower than most of it rivals. It is also starting to reap the benefits of the housing recovery, with a 12 per cent increase in volumes so far this year.

But the stock levels mean prices are unlikely to recover this year, while the benefits of cost-cutting will not flow through until 1994. It is also hampered by two loss- making businesses: bricks in the north- eastern US - which missed out on the recovery; and Portuguese woodpulp.

Optimistic analysts are forecasting pounds 3m profit this year, rising to pounds 10m, or 2.5p of earnings, next. At a multiple of 21 times 1994 earnings, the shares, up 3p at 54p yesterday, are well ahead of events.