CRH stays upbeat on US outlook

The investment case for CRH (CRH) goes something like this: though its reliance on construction activity makes it highly cyclical, the business offers a good balance between geographic diversification and local sourcing on the one hand, and resilient repair, maintenance and improvement (RMI) markets and higher-margin public infrastructure work on the other.

Excellent cash generation – evidenced by a 55 per cent rise in operating cash flow in the first half of 2021 – also means the building materials giant has lots of reinvestment options. Earlier this summer, number two shareholder Baillie Gifford told us that while CRH’s industry “can appear to generate fairly dull GDP-like growth, timely acquisitions and synergies offer attractive growth characteristics”.

Strong profits, cash conversion and smart working capital control also helped to push net debt down by $1.8bn (£1.3bn) to $6bn in the 12 months to June. Since the period ended, the group has spent $0.5bn on four further bolt-on acquisitions, bringing year-to-date growth investments to $1.1bn.

Interim numbers also offered the latest earnings season reminder of capital goods firms’ ability to manage inflation. CRH cited efficiencies, procurement savings, cost control and “commercial excellence initiatives” – as opposed to price rises – as its sources of protection.

Second-half cash profits are now expected to exceed the 2020 comparator, itself a record. Analysts at Jefferies took this to mean Ebitda of at least $5.04bn for 2021, which suggests that full-year consensus earnings forecasts of 290¢ per share could soon rise.

The backdrop remains encouraging. Management is upbeat on the outlook for the US, where Joe Biden’s $3.5 trillion infrastructure blueprint looks a done deal and Berenberg estimates CRH will make four-fifths of its cash profits by 2025. Buy.

Last IC View: Buy, 3,675p, 8 Jul 2021