Interactive Investor

Insider: share slip is buying opportunity for these directors

Both these companies have done well, but share prices fell following the latest results. That’s been the trigger for some significant boardroom buying at one small-cap.

4th March 2024 08:58

by Graeme Evans from interactive investor

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A £375,000 investment by the boss of Brickability Group Ordinary Shares (LSE:BRCK) has given the “extremely well positioned” company his fresh support after a setback for shares last week.

Alan Simpson made his purchase shortly after revealing that the construction materials supplier’s 2023/24 earnings will be at the lower end of City forecasts due to the persistence of tough trading conditions.

The downgrade unwound some of the recent momentum for shares after hopes of an upturn in housebuilding activity sent them as high as 77p, representing a bounce of 20% in the first part of 2024 and 50% since last autumn.

Simpson, who oversaw the Bracknell-based company’s admission to AIM in 2019, dealt his shares at 67.75p in a move that increased his stake to 11%.

Peel Hunt retained its 85p target price despite the downgrade, while counterparts at Cavendish said the new lower valuation created substantial upside potential for the shares.

The latter firm, which has a price target of 95p, said interest rate rises and political uncertainty ahead of a general election had contributed to inertia in the UK construction industry.

Cavendish believes that improved visibility on the UK’s political direction and monetary policy will help unlock an upturn in fortunes.

The broker said Brickability’s performance in the current year showed the benefits of its diversified revenue model and prudent financial planning, which had left it on course for solid profitability and an increased dividend payment.

The recent trading update showed continued positive performances by the company’s smaller Contracting and Distribution divisions, which are focused on windows, doors and radiators and flooring and roofing installation services respectively.

However, the weak demand environment has continued to impact the core Bricks and Building Materials division that serves all sectors of the construction industry.

Brickability reported that market-wide volumes for UK bricks fell 30% and imports by around 42% in 2023, with prices increasingly competitive due to the weaker demand.

Faced with challenging conditions for longer than initially anticipated, the company has assumed a more conservative profile for its recovery over the next 12 months.

However, Simpson is upbeat about opportunities in the market after the recent move into differentiated product offerings and acquisition of higher margin revenue streams.

He added: "We have maintained a disciplined approach to cost and cash management during this period, and I am confident the group is extremely well positioned across each of its divisions to benefit when activity in its end markets recover."

Peel Hunt cut its earnings forecasts by 4% and 8% respectively for this year and the next, but has lifted 2026’s by 8% on hopes of a brick recovery and the impact of recent deal-making.

The broker said: “We believe the direction of travel is unchanged, and that increased profitability will swiftly follow housing market volumes picking up.”

The AIM 100 stock, whose most recent dividend payment in September resulted in a total for 2022/23 of 3.16p, employs 700 people at 70 UK and Europe locations. It generated revenues of £681.1 million in the last financial year, up 30.9% for adjusted earnings of £51.5 million.

Will these shares erupt?

The finance boss of Vesuvius (LSE:VSVS) is another director looking through near-term uncertainty after shares in the molten metal flow engineering firm fell back last week.

The company posted 2023 results ahead of expectations, but with steel and foundry markets still subdued at the beginning of this year the FTSE 250 firm lost some of its momentum.

Finance chief Mark Collis spent £40,000 on Vesuvius shares at a price of 483.6p, which compares with 497p before the results but still higher than the 394p of last October.

His buying follows December’s capital markets event, when the company highlighted favourable medium-term trends in its end-markets as well as the potential benefit of R&D investment.

Driven by a new cost optimisation programme, the company is targeting a 12.5% return on sales by 2026 and cash flow generation of £400 million over the next three years.

The return on sales in last week’s annual results weakened to 10.4% as headline earnings per share fell 17.3% to 46.7p in tough market conditions. The dividend for the year rose 3.4% to 23p, including the planned payment of 16.2p on 31 May.

Analysts at Jefferies expect many moving parts in 2024’s performance but reiterated their “Buy” recommendation and price target of 675p after the results.

The US bank said: “We remain upbeat on the group's ability to deliver strong free cash flow over the next few years, which will fund M&A/buybacks. There is plenty of margin upside potential, and the group should outperform its underlying markets.”

Peel Hunt also left its 600p price target unchanged, adding that its confidence in the 12.5% margin target had grown despite minor adjustments to 2024 forecasts

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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