Picture supply: Getty Pictures
There aren’t many penny shares providing a dividend yield above 5%, however Michelmersh Brick (LSE:MBH) is certainly one of them. The AIM-listed brickmaker’s share worth is down 11% 12 months thus far and 43% since April 2021.
Nonetheless, the promoting might need gone too far, not less than in accordance with the 4 Metropolis analysts following the inventory. They’ve a median share worth goal of 136p — some 54% above the present 88p. What’s extra, all 4 charge the inventory as a Robust Purchase.
Difficult backdrop
Michelmersh is a premium brick and constructing merchandise producer, working all through the UK and Belgium. It sells over 100 merchandise into various finish markets, together with restore, upkeep and enchancment (RMI), housing, industrial, city regeneration, and specification. With round 480 acres of land, it has ample clay reserves.
Because the chart reveals, the share worth has been on a disappointing trajectory since 2021. That is immediately associated to a drop in UK building, which has been hit by greater rates of interest, value inflation, and weaker demand.
In 2024, UK brick consumption was round 1.7bn items, down from 2.5bn in 2022. And market despatch volumes at present are nonetheless 25% under 2022 ranges.
Unsurprisingly then, Michelmersh’s enterprise has been underneath stress. In H1, gross margin weakened to 33.6% from 36.2%, partly on account of an prolonged shutdown at certainly one of its UK manufacturing amenities. Adjusted EBITDA fell 18% to £5.9m, regardless of income rising 1.1% to £35.8m.
Administration warns that the near-term outlook stays murky in each the UK and Belgium. The truth is, the corporate’s Belgium operation was quickly shut down in Q3 owing to weak demand.
Valuation and yield
Subsequent 12 months, administration expects a return to development. That is backed up by present forecasts for £76m in income and a 17% improve in web revenue (round £8.5m).
Primarily based on this, the penny share is buying and selling at just below 10 occasions forecast earnings. As talked about, it’s additionally providing a 5.3% dividend yield, with the possible payout nicely supported by anticipated earnings.
In September, the interim dividend was maintained, indicating confidence within the outlook for the enterprise. And although the brickmaker has dropped a dedication to a progressive dividend, it did this to have the flexibleness to additionally perform share buybacks. In April, it authorised as much as £2m to repurchase its personal inventory.
Supportive developments
Make no mistake, the backdrop for brickmakers stays difficult proper now. However the medium to long run appears far brighter, with greater than 1m new properties set to be constructed within the UK over the following few years. Belgium has additionally acknowledged a have to construct many extra properties.
Wanting forward, the federal government has dedicated to decreasing crimson tape round planning approvals, whereas new English cities have been proposed. Different elements like excessive immigration, the rise of single dwellers, and an ageing inhabitants all level to the necessity for extra homes.
Administration says the enterprise is nicely positioned to benefit from any restoration in building exercise. With the inventory languishing close to a 52-week low, and providing a 5.3% dividend yield, traders would possibly wish to take a better look.
