- Margin expansion lifts first-half cash profit to $2.5bn
- Full-year guidance hiked above consensus
Building products company CRH (CRH) will complete the shift of its primary listing from London to the New York Stock Exchange next month. Its decision, announced in March and approved by 95 per cent of shareholders in June, prompted a lot of soul searching about the London Stock Exchange’s future, but from the company’s point of view it is completely understandable.
In the first six months of this year, CRH generated 61 per cent of revenue and 69 per cent of cash profit from its Americas businesses.
Moreover, the US is seen as the “key driver of future growth”, chief executive Albert Manifold told investors. “Our exposure to this market is likely to increase further, driven by substantial increases in infrastructure funding, a renewed drive for the onshoring of manufacturing activity, and significant levels of underbuild in the residential construction market,” he said.
He expects the switch to the US to “bring increased commercial, operational and acquisition opportunities”, delivering higher levels of profitability and cash generation.
CRH’s impressive track record continued over the past six months, with cash profit increasing by 14 per cent to $2.5bn (£2bn). This was well ahead of consensus forecasts of $2.35bn, despite its Europe building solutions arm dragging down profitability due to “subdued residential activity” and a longer-than-anticipated cold snap. The company remains bullish for the rest of the year, too, guiding for full-year cash profit to be 10 per cent ahead of last year (and 5 per cent ahead of analyst consensus) at $6.2bn.
CRH has generated $20bn of cash over the past five years and has invested $12bn of this (through acquisitions and expansionary capital expenditure), returning the remaining $8bn to shareholders through dividends and share buybacks.
With big US investments expected in infrastructure (through the $1.2tn Infrastructure Investments and Jobs Act) and in onshoring as chipmakers and electric vehicle producers take advantage of generous federal subsidies, Manifold believes CRH “will generate financial capacity in the order of $35bn over the next five years”.
This is certainly ambitious, but the company’s track record suggests it is achievable. And even after increasing in value by a third since the start of the year, CRH’s shares aren’t too expensive – they trade at 14 times broker Davy’s forecast earnings, in line with their five-year average. Even if the New York listing doesn’t lead to a re-rating, we think they still have plenty of upside potential. Buy.
Last IC View: Buy, 4,371p, 2 Mar 2023
| CRH (CRH) | ||||
| ORD PRICE: | 4,408p | MARKET VALUE: | £31.6bn | |
| TOUCH: | 4,407-4,409p | 12-MONTH HIGH: | 4,714p | LOW: 2,782p |
| DIVIDEND YIELD: | 2.2% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 3,188¢* | NET DEBT: | 11% | |
| Half-year to 30 Jun | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (¢) | Dividend per share (¢) |
| 2021 | 15.0 | 1.20 | 121 | 24 |
| 2022 | 16.1 | 1.51 | 158 | 25 |
| % change | +7 | +26 | +31 | +4 |
| Ex-div: | 19 Oct | |||
| Payment: | 22 Nov | |||
| £1=$1.27 *Includes $10.3bn of intangible assets, or 1,435¢ a share | ||||
