Brick and concrete products manufacturer Forterra has raised c. £55m gross in an equity placing in order to maintain its strong balance sheet and support the Group's continued investment programme. It was accompanied by, in our view, a reassuring trading statement which we believe is backed by yesterday’s brick industry data and comments from housebuilders, which suggest that demand has been recovering from its lockdown lows, before the PM’s promises to “build, build, build” housing and infrastructure.
The non-pre-emptive placing, after yesterday’s market close, was achieved by means of a book-building process, at a price of 195p, a 5.6% discount to the closing price of 206.5p and represented c. 14% of the share capital prior to the placing. All directors participated.
The funds are intended to support Forterra’s continued investment, including the completion of its new brick manufacturing plant at Desford, Leicestershire, a major pillar of its growth plan and forecast to be the largest and most efficient plant in the UK. The Group expects it to generate attractive returns over the medium term.
The group has provided two of a number of its recovery scenarios: ‘accelerated’ (including volumes 35% below 2019 in FY 2020 and -20% in FY 2021, prices +2% pa, £10m restructuring, dividends resumed at HY 2021) and ‘slower’ (vols -40% and -30%, prices 2% pa, dividends in FY 2022). Forterra entered the Covid-19 crisis with net debt, post IFRS 16, of £57m at YE 2019, 0.7x EBITDA. Under the accelerated scenario, net debt to EBITDA following the placing would be 2.1x and 1.3x at YE 2020 and 2021 respectively (4.4x and 2.4x without the raise). Under the slower scenario, it would be 3.8x and 2.3x (7.2x and 3.8x without).
The Group has “continued to see momentum” since the 3 June trading statement. For the five months ended 31 May, revenue was 39% lower Y/Y, including an improving trend of -86% in April and -62% in May. Daily despatches of brick and block products in June have now further recovered to c. 65% of corresponding 2019, with run-rates improving through the month. This is supported by brick deliveries bouncing off April lows (page 2). The Group is currently manufacturing at 14 of its 18 plants.
The PM on Tuesday promised a range of support for construction, to be followed, we understand, by further announcements.