Brickability Group‘s (LSE:BRCK) a distributor of construction materials (not just bricks) and has built (excuse the pun) a reputation as a dividend stock. And with earnings growing strongly I’m sure shareholders will be hopeful that its payout will continue to rise.
On 24 April, the group released a pre-close trading update stating that revenue for the year ended 31 March (FY25) is expected to be 7% higher than in FY24. Also, adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) is forecast to be 11% better.
Some of the improvement is due to its specialist cladding and fire remediation division delivering projects ahead of schedule. This is a shift of turnover between accounting periods rather than new business. But the group said there was “good momentum in trading” more generally.
Within a week of this announcement, the group’s share price had risen 15.5%. But its shares are now changing hands for only fractionally more than before the news was released. It means nearly all of the benefit to shareholders from its FY25 results being ahead of expectations has been lost.
So what’s going on?
Downsizing
A quick look at the company’s other stock exchange announcements is revealing. On 13 June, Alan Simpson, a non-executive director (NED), and Sarah Simpson, a close associate, reduced their combined stake from 11% to 7.23%. The shares fell nearly 6% when this news was announced. The amount received hasn’t yet been disclosed but it’s likely to be around the £7m mark.
And two days earlier, the managing director of Brickability’s Distribution division sold 3m shares and another NED offloaded 1m. These sales realised proceeds of £2.07m and £690,000 respectively.
Of course, I’ve no idea why these individuals have decided to reduce their stakes in the company. Everyone has different financial circumstances and I don’t think it’s unreasonable to ‘cash out’ at some stage. After all, you can’t spend shares. But whatever the reasons, these sales aren’t a good look.
Loss of income
These senior managers are going to miss out on generous levels of passive income. Based on amounts paid over the past 12 months, the stock’s currently (20 June) yielding 5.5%. The FTSE AIM All-Share index is offering 2.27%.
We don’t yet know what the final dividend for FY25 will be but it looks as though it’s likely to be higher than it was in FY24. If so, it means the group will have increased its annual payout for four consecutive years.
Final thoughts
But the group’s relatively small. As its listed on the Alternative Investment Market (AIM) with a market-cap of just under £200m, it doesn’t have the financial firepower to cope with a sustained downturn in the UK construction industry.
And even though I’m sure there are perfectly valid reasons for the directors’ share sales, they’re likely to dent investor confidence.
But the group has lots going for it. Revenue and earnings are heading in the right direction and the green shoots of a recovery are starting to show in the housebuilding sector. Also, the UK cladding ‘scandal’ is providing plenty of opportunities for further work.
For these reasons, when combined with a healthy 5%+ yield, investors could consider adding the stock to their portfolios.
