Installed Building Products (NYSE: IBP) is an American home improvement company. It has had a great year, despite the problems with the pandemic. And the company’s future prospects look pretty good.
What they make money on
The company installs water and fire protection, windows, curtains, shower and garage doors, gutters and other things you need for repairs in homes.
According to the annual report, the company’s revenue is divided into the following segments:
- Thermal insulation of premises. Fiberglass, foam and cellulose insulation installation services – 64% of profits.
- Water protection. Installation of waterproofing membranes, various coatings – 7%.
- Installation of shower doors, mirrors and shelves – 7%.
- Garage door installation – 6%.
- Installation of gutters for gutters – 3%.
- Various types of window coverings: from blinds to blackout systems – 3%.
- The installation of other residential gizmos, which the report did not bother to name, is 10%.
82% of the company’s revenue comes from residential buildings, but 18% comes from commercial real estate. The company operates only in the United States.
The company’s revenue by type of real estate in Q3 2020
| New single-family homes | 63% |
| New apartment buildings | 12% |
| Repairs and remodeling | 7% |
| Commercial Real Estate | 18% |
Source: Company presentation, slide 4
Revenue for the last 12 months in billions of dollars, final margin as a percentage of revenue. Source: Macrotrends
Everything is yes
Despite all the crown crisis problems, 2020 for the company came out very well: sales rose in all segments, including even commercial real estate, which, in theory, should have been a failure because of the exodus of residents and workers from large cities.
The U.S. real estate market continues to show excellent growth rates. There is less and less real estate, and the demand for it is getting higher. And even if new homes are beyond the means of potential buyers, it does not cancel out the growing demand for new homes. It will grow by building homes for rent – the good news is that it’s profitable. And the average age of real estate in the U.S. is very high – about 40 years. And that means that demand for renovations will grow as well. All these factors combine to create a favorable situation for IBP.
Moreover, the company may well be bought. It could be someone from among the big house builders like Toll Brothers: in fact IBP does work that complements the process of building houses, because a house is not just four walls and a roof. And to buy IBP in order to integrate it into its operations would be a quite reasonable solution for a large enough builder. The company’s price is reasonable: capitalization at $3.6 billion and P/E of about 40. Of course, this is a lot, but not shamelessly much.
The company’s revenue in the markets segment in thousands of dollars and percentages
| 1 Jul – 30 Sep 2019 | 1 Jul – 30 Sep 2020 | 1 Jan – 30 Sep 2019 | 1 Jan – 30 Sep 2020 | |
| Construction of residential buildings | 297 003 | 315 434 | 840 806 | 912 095 |
| Repairs and remodeling | 25 029 | 28 625 | 71 254 | 75 702 |
| Commercial Real Estate | 74 417 | 76 427 | 198 338 | 223 959 |
| Total | 396 449 | 420 486 | 1 110 398 | 1 211 756 |
| 1 Jul – 30 Sep 2019 | 1 Jul – 30 Sep 2020 | 1 Jan – 30 Sep 2019 | 1 Jan – 30 Sep 2020 | |
| Construction of residential buildings | 75% | 75% | 76% | 75% |
| Repairs and remodeling | 6% | 7% | 6% | 6% |
| Commercial Real Estate | 19% | 18% | 18% | 19% |
The company’s revenue in the services segment in thousands of dollars and percentages
| 1 Jul – 30 Sep 2019 | 1 Jul – 30 Sep 2020 | 1 Jan – 30 Sep 2019 | 1 Jan – 30 Sep 2020 | |
| Thermal insulation | 253 311 | 268 292 | 710 005 | 779 045 |
| Protection against water | 32 781 | 33 272 | 84 024 | 89 855 |
| Doors, shelves, mirrors | 27 011 | 29 282 | 77 828 | 85 199 |
| Garage doors | 22 336 | 24 001 | 65 790 | 68 655 |
| Gutters for gutters | 13 366 | 17 295 | 37 561 | 41 942 |
| Window coverings | 10 615 | 12 166 | 30 780 | 34 651 |
| Other Products | 37 029 | 36 178 | 104 410 | 112 409 |
| Total | 396 449 | 420 486 | 1 110 398 | 1 211 756 |
| 1 Jul – 30 Sep 2019 | 1 Jul – 30 Sep 2020 | 1 Jan – 30 Sep 2019 | 1 Jan – 30 Sep 2020 | |
| Thermal insulation | 64% | 64% | 64% | 64% |
| Protection against water | 8% | 8% | 8% | 7% |
| Doors, shelves, mirrors | 7% | 7% | 7% | 7% |
| Garage doors | 6% | 6% | 6% | 6% |
| Gutters for gutters | 3% | 4% | 3% | 4% |
| Window coverings | 3% | 3% | 3% | 3% |
| Other Products | 9% | 8% | 9% | 9% |
Source: Company Quarterly Report, page 9 (12)
Summary
Given the trends in the U.S. real estate market, IBP looks like a very good option for investment. Of course, it is necessary to take into account the probability that the decrease of orders in the sphere of commercial real estate will spoil the company’s reports. And the growth in the real estate market cannot go on forever. But here it is possible to take the risk and invest in these shares for the perspective of several years – mainly in expectation of purchase of the company by someone bigger.
