CRH Plc

CRH Plc (LON: CRH) is an FTSE 100 index listed construction and materials company having an international footprint. It is the leading building materials business in the world.

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

The last dividend of USD 0.93 per share was paid on 5 May 2021 (final dividend).

Investment Rationale for Valuation – SELL at GBX 3,859.00

• The management could not provide detailed guidance for FY2021 due to a lack of visibility.
• On the profitability front, the net margin since H1 FY2019 has been lower than the industry median of 7.5%.
• On the leverage front, the debt/equity ratio since H2 FY2018 has been higher than the industry median of 0.48x.
• In the last year, the stock generated a decent return of about 26.20%, offering investors an opportunity to book a decent profit.
• The stock is trading near its 52-week high price, raising doubt about its upside potential from the current level. Hence, a correction in the near term cannot be ruled out.
• On the technical front, the 14-day RSI at about 71.50 is sustaining in the overbought zone. Also, the stock price is above the upper Bollinger band. Hence, there could be a correction in the stock price in the near term.

Key Risks

• The acquisitions may not achieve desired synergies, incurring additional costs for the Company.
• The real estate sector is cyclical. Hence, during economic downturn, there could be lower demand for construction and building materials.
• Many of CRH’s products are commodities. They face competition based on both volume and price.

Q1 FY2021 Trading Update (released on 28 April 2021)

• Due to the impact of harsh winter weather conditions, like-for-like sales for Americas Materials were down 1% YoY in Q1 FY2021.
• However, due to a favourable pricing environment and improved trading, like-for-like sales for Europe Materials increased 1% YoY in Q1 FY2021.
• Also, driven by the solid demand for residential construction in North America, like-for-like sales for Building products rose 12% YoY in Q1 FY2021.
• Driven by these performances, overall like-for-like sales in Q1 FY2021 rose 3% YoY.

One Year Share Price Chart

(Source: Refinitiv, Analysis done by Kalkine Group)

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

Conclusion

There could be potential supply chain headwinds causing cost overruns. Also, pandemic related challenges could reappear due to the delta variant of Covid-19.  Hence, it would be prudent to liquidate the position at a profit as the stock is also trading near its 52-week high, indicating overstretched valuation. Overall, we do not have significant catalysts to support an uptick in the stock price and recommend exiting the position currently. The stock made a 52-week low and high of GBX 2,577.46 and GBX 3,864.00, respectively.

Considering the continued economic and market uncertainty, lack of detailed guidance from the management, potential supply chain disruption, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on CRH Plc at the current market price of GBX 3,859.00 (as of 13 August 2021 at 8:25 AM GMT), while we will revisit our stance based on further improvements in the macroeconomic condition. 

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

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*Dividend Yield may vary as per the stock price movement.

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