The stock market crash saw the FTSE 250 fall more than 40% from its year-to-date high to a low of under 13,000 in March. Whilst we’ve seen a partial recovery since then to just over 17,000 currently, some companies remain stubbornly low.
Profiting from the stock market crash
Ibstock (LSE: IBST) is the UK’s leading brickmaker. As such, it is intrinsically linked to the housing market. So it will come as no surprise that when the builders stop making houses, profits will take a hit. Ibstock announced last month that revenues in April and May declined by 75% following March’s stock market crash.
As a result, management turned to cutting costs – with the top brass taking a 20% salary cut – and they announced in June that around 15% of its workforce could be axed as sales volumes slipped.
The dividend was cancelled to preserve cash, but should it be reinstated at the same level then we are looking at a yield of 5.5%.
However, I see these issues as temporary setbacks. The long-term fundamentals remain unchanged at this FTSE 250 company. A new brick factory is in the works to increase production levels and the acquisition of concrete maker Langley in 2019 will add to its sales.
The stock market crash has Ibstock trading 40% below its year high. We have a chronic shortage of housing in the UK and the Government has promised to build 300,000 new homes each year. As the biggest brickmaker in the UK, I would expect Ibstock to profit from this need. I think we are looking at a bargain buy here.
You can clean up with this FTSE 250 bargain
Waste management company Biffa (LSE: BIFF) continued to operate during the shutdown as a recognised key sector. Therefore, it might be a surprise to see the share price off a third from its year high.
But Biffa has not managed to avoid this stock market crash. The dividend was cancelled in March, and Biffa has said it will be ‘restricted’ until at least 2022.
Despite a strong performance in its recycling business, the company warned of ‘very significant’ reduction in demand for Industrial and Commercial (I&C) collections. In June, the FTSE 250 company said that revenues in I&C are still 40% below pre-coronavirus levels and may not recover to pre-2020 revenue levels until well into 2022.
Biffa also raised £100m in an equity placing at 200p to help see it through the pandemic and to take advantage of any potential acquisitions that may arise.
I do think Biffa will survive this stock market crash and revenues will eventually return to pre-crisis levels. But I think there are better FTSE 250 recovery stocks out there to invest in right now, with Ibstock being one of them.
The post The stock market crash makes these FTSE 250 shares look cheap to me appeared first on The Motley Fool UK.
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David Barnes owns shares in Ibstock. The Motley Fool UK has recommended Ibstock. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020