Bottom Line: Rating of Ibstock is over-optimistic

IBSTOCK'S hefty loss last year is pretty irrelevant. A pounds 16m writedown following the closure of its smaller Portuguese pulp mill accounted for the bulk of an pounds 18.7m pre-tax shortfall, there was a loss per share of 5.69p and the dividend was pegged at 1p.

But, even stripping out the one-off cost, the underlying picture at the country's third largest brick maker is scarcely encouraging. Profits from the core UK brick operation were up a tenth to pounds 3m but price rises are still hard to come by.

On the bright side, stocks have stabilised, the industry as a whole is making no more bricks than it is selling, and demand is picking up thanks to the nascent recovery in the housing market.

But bricks are a commodity product for which 1989's extraordinary 35 per cent margins are unlikely to return. Analysts expect no more than 12 per cent, double the current return but unexciting.

Of even more concern were continuing heavy losses from the Portuguese pulp operation and the failure of the southern European building materials businesses to provide a safe haven from the harsh brick and paper cycles.

A proposed name change (to drop the Johnsen) underlines the limited life of the non-brick activities.

What is left is a cyclical business on an over-optimistic rating. Having tripled over the past 18 months to 86p, the shares trade at 43 times expected earnings this year and 23 times next year's forecast. That is too high. Sell.

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