CRH PLC (LON: CRH)

CRH Plc is an FTSE-100 listed construction & materials company having an international footprint. CRH was founded in 1936 and is headquartered in Dublin, Ireland. It provides building materials and operates through nearly 3,100 locations in 29 countries. It is the leading building materials business in the world. CRH has three operating segments: Europe Materials, Americas Materials and Building Products. CRH is a manufacturer and supplier of cement, aggregates, precast, lime, ready mixed concrete, concrete masonry, glass and glazing products, etc.  It also provides civil engineering and building contracting. In North America, the most profitable construction market in the world, CRH repositioned itself in recent years by sector, region and end-use.

On 26 August 2021, CRH would announce its H1 FY2021 results.

Recent trend of dividend payments

 (Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates the consistent dividend payment done by CRH from FY2016 to FY2020. In FY2020, CRH paid a total dividend of USD 1.15 per share, up 25% YoY. The last dividend of FY2020 of USD 0.93 per share was paid on 5 May 2021 (final dividend). It had an ex-dividend date of 18 March 2021.

The current dividend yield of CRH at 2.20% is higher than that of the construction & materials sector at 1.90%.

Growth Prospects

• Strong demand for construction: There is a rising demand for residential construction, especially in North America. Additionally, the US government is making significant investments in infrastructure projects. These would drive the demand for construction materials and fuel CRH’s growth.
• Inorganic growth through acquisitions: CRH made seventeen acquisitions in FY2020 and four in Q1 FY2021. It expanded its Infrastructure Products footprint in the Midwest of the US. There is also a strong pipeline of opportunities.
• Positive pricing environment: There are still some supply chain issues for construction materials. However, due to the strong and rising demand for those materials, there is a positive pricing environment, which could drive the revenue growth for CRH.
• Repositioned for superior growth: North America is the most profitable construction market in the world, with a growing population driven by increased migration, which fuels demand for new construction. CRH has repositioned itself in North America by sector, region and end-use to utilize this solid and steady demand.
• Value-added products and integrated building solutions: CRH develops products that reduce construction times, improve the safety of buildings, prolong their life-cycle and are cheaper. These factors help in acquire and retain customers.

Key Risks 

• Cyclicality of real estate sector: The real estate sector is cyclical. Hence, muted consumer confidence during an economic downturn could impact the demand for construction and hence, for building materials.
• Lack of synergy in acquisitions: CRH pursued inorganic growth through continuous acquisitions and made seventeen acquisitions in FY2020 and another four in Q1 FY2021. If these acquisitions fail to bring the desired synergies, then it would affect the margins of CRH.
• Disruption in many regions: If the Indian variant of Covid-19 drives the governments to enforce fresh lockdowns, there could be disruption challenges in many regions where CRH operates, affecting CRH’s business.
• Commodity products and substitution: Many of CRH’s products are commodities. They face competition based on both volume and price. Also, they could be replaced by substitute products.
• Changing consumer preferences: There is a trend of changing consumer preferences. Hence, the inability to innovate and differentiate could lead to a fall in CRH’s market share, affecting its margins.
  

Now we will analyze some key fundamental and shareholders statistics of CRH PLC.

Recent Development 

Change in Finance Director: On 2 June 2021, CRH announced that Jim Mintern had become the new Group Finance Director effective 1 June 2021. He succeeded Senan Murphy.

Q1 FY2021 Trading Update (released on 28 April 2021)

• Driven by strong commercial management but offset by the impact of harsh winter weather conditions, like-for-like sales for Americas Materials were down 1% YoY in Q1 FY2021.
• Due to improved trading in March 2021 and a favourable pricing environment, like-for-like sales for Europe Materials were up 1% YoY in Q1 FY2021.
• Fuelled by solid demand for residential construction in North America, like-for-like sales for Building Products were up 12% YoY in Q1 FY2021.
• Due to these performances, overall like-for-like sales increased 3% YoY in Q1 FY2021.
• CRH made four acquisitions in Q1 FY2021, spending ~USD 0.2 Billion. It expanded its Infrastructure Products footprint in the Midwest of the US.

Financial and Operational Highlights (for the year ended 31 December 2020 as of 4 March 2021)

(Source: LSE Website)

• Due to Covid-19 related disruptions in construction markets of North America and Europe, like-for-like sales in FY2020 declined 2% YoY.
• However, driven by cost rationalisation, EBITDA surged by 3% YoY in FY2020.
• CRH announced 2030 sustainability targets in the areas of greenhouse gas emissions and sustainable products.
• CRH made 17 acquisitions in FY2020, spending USD 405 million in the process. There are several acquisitions in the pipeline.
• CRH delivered net debt to EBITDA of ~1.3x, which is the lowest level achieved in the last ten years.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 5 July 2021, at 7:55 AM GMT, CRH’s shares were trading at GBX 3,629.00, down by 0.87% against the previous day closing price. Stock 52-week High and Low were GBX 3,805.00 and GBX 2,577.46, respectively.

On a daily chart, CRH's price is sustaining above 200-day EMA of about GBX 3,309.00, indicating the possibility of an upward movement. The momentum indicator RSI (14-period) is trading at ~47.45 level and moving towards the oversold zone. The MACD line is trading above the centreline, however, forming a negative crossover with the signal line.

In the last five years, CRH’s stock has delivered a decent positive return of ~69.65%. It has outperformed the FTSE AIM All-Share Construction and Materials index with a return of around 59.95% and the FTSE 100 index with a return of about 9.22%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Peers used in the valuation methodology (Price/NTM Earnings)

Business Outlook Scenario

CRH delivered a resilient performance in Q1 FY2021, with like-for-like sales rising 3% YoY. It made four acquisitions in Q1 FY2021, spending ~USD 0.2 Billion, and expanded its Infrastructure Products footprint in the Midwest of the US. It has an ongoing share buyback programme. The management recognizes good underlying demand and positive pricing in its key markets, which provide further confidence for FY2021 and beyond. The Company is benefitting from strong demand for construction activities, inorganic growth from acquisitions, a positive pricing environment, reposition in the attractive North American market and having value-added products and integrated building solutions going into H2 FY2021. The management anticipates further market recovery as the health situation improves.

The Board is confident that CRH’s resilient business model and strong balance sheet would drive further growth opportunities. On the technical chart, the next important support level is at GBX 3,084.00.

Considering the resilient performance, the benefits of the acquisitions, increasing demand from construction, the Company’s strong balance sheet, the decent profitability and liquidity profile of the business, and support from the valuation as done using the above method, we have given a “BUY” recommendation on CRH Plc at the current price of GBX 3,629.00 (as on 5 July 2021 at 7:55 AM GMT), with lower-double digit upside potential based on 19.94x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective buy stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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