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Results show benefits of big acquisition

Michelmersh Brick Holdings (MBH:AIM) 92.3p

Gain to date: 9.9%

Original entry price: Buy at 84p, 29 March 2018

An extremely positive set of first half results from brick maker Michelmersh Brick Holdings (MBH:AIM) helps build some momentum behind our positive call on the shares.

As we expected the acquisition of Barnsley’s Carlton Main Brickworks has resulted in a substantial increase in earnings and cash flow. This helps underpin a very healthy 51% increase in the interim dividend to 1.06p. A similar increase in the full year dividend would imply a yield pushing 4%.

Though our other favoured brick maker Ibstock (IBST) has been struggling this appears to be linked to company-specific issues with the fundamentals behind the UK brick market remaining positive. As Michelmersh observes, brick demand remains strong with imports required to meet shortfalls and stocks near to historically low levels.

The improved cash generation of the business is enabling it to pay down the borrowings associated with the purchase of Carlton with the company guiding for net debt to be below one times earnings by 2019 and the company is on track to meet full year expectations.

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