CRH boosted by building boom

A building boom on both sides of the Atlantic underpinned growth at CRH (CRH), the construction materials giant that provides everything from crushed stone to the architectural glazing that covers some of the world’s biggest skyscrapers.

Cash profit growth expanded faster than its top line, growing by 16 per cent to $5.35bn ($3.99bn). About 70 per cent of this is generated in the US, where chief executive Albert Manifold said the business is benefiting from strong demand in the home improvement market as well as a push into faster-growing areas in the south and west.

The company continues to throw off cash, generating $4.2bn last year, but is spending it just as quickly – $1.5bn went on 20 bolt-on acquisitions, $1.6bn on capital expenditure and $1.8bn on dividends and share buybacks. This meant net debt edged up by $400m to $6.3bn by the year-end. This represents just 1.2 times cash profits, though, and should soon reduce once the recently announced $3.8bn sale of its Oldcastle Building Envelopes business completes. It is being sold to private equity buyer KPS Capital Partners at an “attractive exit multiple” of 10.5 times cash profit, finance director Jim Mintern said on an earnings call.

Manifold said CRH is likely to be “a significant beneficiary” from the $1.2tn infrastructure bill that Congress passed into law in the US in November, which will increase government spending by 50 per cent over the next five years. About 30 per cent of the bills proceeds should be allocated to projects in its 10 biggest markets.

A 17 per cent sell-off since the start of this year means that CRH’s share price is now flat over the past 12 months. We think this represents a buying opportunity. At less than 13 times earnings per share, the company looks relatively cheap, given the market’s prospects. Buy.

Last IC View: Buy, 3,802p, 26 Aug 2021