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Investing.com -- RBC on Thursday cut its price target for Ibstock (LON:IBST) following a profit warning that the research firm attributes to overly optimistic guidance and technical challenges at multiple brick manufacturing sites.
The firm reduced its adjusted earnings per share estimates by 31% for fiscal year 2025 and 5% for fiscal years 2026 and 2027.
The brick manufacturer now faces a £6-8 million hit to its fiscal year 2025 price expectations, with RBC forecasting flat average selling prices compared to fiscal year 2024.
While Ibstock had previously reported a 5% price increase in March, RBC believes the actual increase for fiscal year 2025 will be closer to 1-2%, with negative mix impacts likely offsetting gains as volume growth is driven by demand for lower-priced extruded bricks.
Operational issues at multiple brick factories have created a £5-6 million earnings headwind for fiscal year 2025, according to RBC. These technical challenges have led to inefficient yields and one-off "troubleshooting" costs that have yet to be resolved, though management views the current estimate as prudent.
RBC has reduced its fiscal year 2025 adjusted EBITDA estimate by 17% to £76 million, compared to Ibstock’s new guidance of £77-82 million.
The lower fiscal year 2025 sales base, affected by reduced average selling prices, has driven a 3% adjusted EBITDA reduction in the firm’s fiscal year 2026/2027 estimates.
Despite these setbacks, RBC maintains that Ibstock remains a "deep value earnings recovery play" with normalized adjusted earnings per share potential of over 20p compared to the firm’s fiscal year 2025 estimate of 6.5p.
The research firm suggests using the current weakness as an entry point, noting that Ibstock trades at approximately 8 times recovered price-to-earnings ratio versus its 12 times long-term average.
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