The UK Brick Industry Could Be One of the Most Mispriced Cyclical Setups in Europe
An overlooked oligopoly at cycle lows with attractive dividends & buybacks
When I think of an oligopoly in which three companies account for 90% of supply, I assume that this trinity achieves significant cash flows, attractive margins and capital efficiency. In the case of the British brick industry, we are trading at cycle lows, with the largest players trading at levels 60-70% below pre-COVID levels. That goes against what you would expect when the government publicly states its intent to massively increase residential home construction. At the same time, the industry has been reshaped over the past two decades, with plants closing and imports increasing. With stock prices bombed out and peak CAPEX behind us, there is a world in which the cycle turns and investors chase the former icons again.
1. Background — From Rome to the Great Fire of London
The UK has long been a vital place for brick production, with today’s leading producers founded roughly 200 years ago. The Romans introduced the island to clay bricks over 2,000 years ago, which was followed by centuries in which timber remained the main construction material. Following the Great Fire of London in 1666, brick became more popular, even as politicians introduced special taxes. After WWII, reconstruction led to skyrocketing demand for bricks. At its peak, Britain was home to thousands of local brick producers and was largely self-sufficient. In the 1960s to 1980s, oversupply and harsher air pollution standards caused the fragmented industry to consolidate, leaving only a few large players in a once much more diverse market.
Following the Great Financial Crisis and tougher operating conditions towards the end of the 2000s, several significant plants were shut down, causing production capacity to decrease by 600 million bricks per annum.
Up until 2022, the market was more or less balanced, with demand at 2.5 billion bricks. Domestic production accounted for 2 billion bricks, imports contributed 600 million bricks and inventories increased by 100 million bricks. That year, demand hit the highest levels this century and sentiment was positive. Fast forward 4 years and the situation has turned bleak. Demand collapsed by 28%, inventories doubled to 600 million bricks and domestic production decreased 20%.
What happened in 2023 can be described as a perfect storm of higher energy and raw material costs, combined with a slowdown in construction, while a spike in interest rates to 6% made it effectively impossible for first-time home buyers to participate in the market. When demand took a hit, the leading real estate developers scaled down, directly hitting the brick industry.
When you look at the chart above carefully, you will realize that demand ticked up slightly in 2025. This positive momentum towards the end of the year was seen as a cautiously optimistic sign for 2026. However, the first quarter had other plans, with domestic brick demand down 11% YoY on the back of heavy rainfall and record-low new building activity for residential properties. As soon as the weather improved, demand came back, but conflict in the Middle East and the resulting volatility in energy prices add a severe risk to the highly energy-intensive brick industry.
2. UK Housing — Between Affordability Issues & Political Promises
The core reason for the cyclical downturn in brick demand has been weak new-building activity, especially in residential properties, which account for close to 70% of total brick demand. The other 30% come from renovation, maintenance and improvement of existing properties. As most of us know, housing affordability is terrible and mortgage payments make up, on average, roughly one third of people’s income.
With interest rates spiking above 6% as a second-order effect of the Middle East conflict, there is no easing in sight, causing sustained pressure on first-time home buyers for the time being. What stands out is the fact that the Labour government has targeted the construction of 1.5 million homes over 5 years. Obviously, this promise is already far off track, but it shows the urgent need for residential construction. Under significant pressure, the current government is considering drastic reforms in the application of building permits, but results remain to be seen.
Whatever the short-term trajectory of the housing market might be, there is no denying that the long term is constrained by undersupply, increasing the need for new builds and bricks. In this context, it is worth noting that, due to significant net immigration, one can expect housing demand to grow in the years to come.
3. The Oligopoly — From Pure Plays to Multinationals
Having mentioned the concentration of the British brick industry, roughly 90% of volumes derive from Ibstock, Forterra and Wienerberger, the latter being an Austrian company and de facto the largest global producer of bricks
Ibstock accounts for 41% of the market, while Forterra claims 28% with the famous brand “London Brick Company”. If you include the more specialized and niche Michelmersh, you add another 6% to the oligopoly that acquired, or simply outlasted, smaller competitors that went bankrupt in the past. When betting on specific companies in the sector, we have to be aware that the current environment is far from great and a new energy crisis could hit the industry at a particularly vulnerable time. Therefore, the companies try to position themselves in advance to capture most of the cyclical demand uplift when it eventually arrives. By shutting down inefficient plants, investing in newer, modern facilities, laying off workers, reducing debt, etc., the oligopoly is navigating a harsh sea as best as possible.
3.1 Ibstock
Ibstock is the largest and one of the oldest British brick producers, having been established 200 years ago. The company generates 60% of its revenues from new-building activity, 30% from renovation and improvement work and the remaining 10% from infrastructure. Following years of troubled conditions, the stock has fallen below its IPO price and below levels seen during COVID. At a market cap of £394 million and an EV of £514 million, Ibstock is trading at a market cap that is roughly equal to the CAPEX the company spent over the past decade on growth and improvement of existing facilities.
Having mentioned the need to strategically reposition capacity and reduce the cost base, Ibstock has spent £120 million on new facilities that will commence production as early as this year. CAPEX is largely completed and, at full utilization, the growth projects would add £30 million in EBITDA p.a.
Furthermore, the company has been reducing debt while repurchasing shares in 2025, with intentions to follow that trajectory this year as well. To raise more cash, reduce the asset base and realize hidden value, Ibstock sold non-core assets, including land and a roofing business, in a transaction valued at £30 million in late 2025. While the industry is in a bad place, the Leicestershire-based firm is well positioned to profit from improving conditions and is as much of a pure play as there can be on the British brick industry, if that is a theme one wants to be involved in. Growing shareholder distributions, in the form of buybacks, de-leveraging and peak CAPEX are potential catalysts for a re-rating once capital returns to the industry.
At an 80% utilization rate for the newly commencing facilities, flat revenue and margins YoY, as well as the given guidance on CAPEX, taxes and financial costs, adj. FCF would amount to £55 million, valuing the company at 7x P/FCF and ~9x EV/FCF. This number could easily move to £70 million+ if market fundamentals improve, although a short-term shock due to the Iran war seems more likely in the current environment.
3.2 Forterra
Forterra’s situation is slightly better than that of Ibstock, with somewhat better performance over the past few years and lower debt levels. Like its biggest competitor, the company has spent a lot of capital on growth and new facilities, specifically the Desford and Wilnecote projects, which would increase annual EBITDA by £32 million at full capacity. On a positive note, Forterra has been very disciplined with its CAPEX, prioritizing cash generation and shareholder distributions in tough times like these.
Furthermore, Forterra has lower net debt than Ibstock at just £55 million compared to roughly £120 million. Both companies follow a similar approach by monetizing land bases to reduce debt and increase capital returns. For this year, Forterra targets spending £20 million on buybacks, equating to roughly 6.7% of shares outstanding.
At a market cap of £295 million and an EV of £350 million, the company trades at a considerable discount to Ibstock while generating roughly the same amount of adj. FCF once the growth projects commence operating later this year. Having generated £62 million in adj. EBITDA in 2025, we can add the growth projects at a 70% utilization rate, deduct £15 million in CAPEX, £6.5 million in financial expenses and £8 million in taxes to arrive at £55 million in adj. FCF. This would result in Forterra trading at 5.4x P/FCF and 6.4x EV/FCF. At a 5% dividend and 11.7% shareholder yield, the company appears to be a safer and better bet on bricks than market leader Ibstock.
3.3 Wienerberger
The Austrian Wienerberger AG is the world’s largest producer of bricks and clay blocks, operating over 200 production sites across 28 countries. Founded over 200 years ago in Vienna, the company has evolved into a global provider of infrastructure piping and water management solutions. Wienerberger is a different business from Forterra or Ibstock, because the company is much more diversified and exposed to different trends.
A decade ago, new-building activity accounted for 65% of revenues, while renovation and improvement works generated an additional 20% and infrastructure was a minor part of the business at just 15%. Today, new-building activity’s share of revenues has declined to 43%, while renovation and infrastructure grew to 38% and 19% respectively. On top of that, Wienerberger spent close to €1.2 billion on 10 acquisitions at a weighted average multiple of 5x EV/EBITDA. As a result of the continued growth, improvement and diversification of the business, the dividend has been nearly quadrupled in the past decade while EBITDA margins expanded 520 bps.
At a market cap and EV of €2.64 billion and €4.2 billion respectively, and given the guidance for 2026 and the market environment, it is fair to assume €420 million in adj. FCF generation, excluding changes in working capital. That would imply a valuation of 6.3x P/FCF and 10x EV/FCF. The current dividend yield of 4% is reasonably attractive given the highly diversified exposure of the group and future growth potential.
4.0 Conclusion & Thoughts
In conclusion, the brick industry, especially in the UK, is in bad shape. Energy prices and a weak residential construction sector have left their marks. Still, I see potential where most would focus on the negative headlines. The oligopoly in place controls the entire market and has been around for 200+ years. The current crisis has raised awareness of capital discipline at the HQs of Forterra and Ibstock, which have both announced the sale of land banks to reduce debt. In addition, new facilities will open soon to replace older, less efficient ones. The current state of the construction sector is unsustainable, which has become a political debate and is raising hopes for lasting changes in an over-regulated sector. Normalized market conditions would mean significant free cash flow generation relative to the market caps and EVs of the companies discussed above. However, the closure of the Strait of Hormuz and the potential impact on interest rates as well as energy costs are significant threats to the operational businesses of Wienerberger, Ibstock and Forterra. While the companies claim to be largely hedged for the next few months, a prolonged crisis and the resulting pressure on construction would likely cause another leg down in already depressed share prices.
An interesting point is that Forterra and Ibstock moved higher following bad Q1 trading updates. A rainy start to the season caused volumes to drop roughly 11% YoY. Still, the market seemed to have priced in the worst already, creating an asymmetric setup. Forterra is the cheapest stock of the group and provides attractive capital returns, while Wienerberger stands out through diversification and its track record. Ibstock is interesting but has higher leverage and trades at a premium to Forterra, which I deem unwarranted. At the current moment in time, I do not hold any of the mentioned stocks as I expect tensions in the Middle East to weigh negatively on the industry. Depending on how this situation resolves and the price action of the oligopoly, I would be more than happy to build a position in one or two of the names.
Yours sincerely,
Oliver Stencel