ii view: CRH builds cash pile to see it through the pandemic

This company is a possible winner from government stimulus once business returns to normal.

First-quarter trading update

• Like-for-like sales up 3%
• Over $6 billion of cash & cash equivalents
• Share buyback programme suspended
• Final dividend payment of €0.63 per share subject to AGM vote

Chief executive Albert Manifold said:

"We have had a good start to the year, and although the global spread of Covid-19 brings challenges for us all, I have no doubt that with the financial strength of CRH and the experience of our leadership teams, we will endure through these unprecedented and uncertain times. All necessary actions are being taken to protect our employees and businesses, and to ensure that we are well positioned for the recovery in our markets."

ii round-up:

Global diversified building materials company CRH (LSE:CRH) today outlined a series of measures it is taking to combat Covid-19.

Its share buyback programme has been suspended, some staff across the business have been furloughed while directors are taking a 25% salary cut. All non-essential expenditure is being delayed and a group-wide recruitment freeze is now in place.

However, with the company sat on cash and cash equivalents of $6 billion and like-for-like sales over the first quarter rising by 3%, the final dividend payment will still be paid, subject to the AGM vote. 

Management also pointed to CRH as a possible winner post the corona crisis, with governments globally potentially ramping up economic stimulus and construction spending.

Its shares rose by more than 5% in UK trading, partially offsetting a 20%-plus drop year-to-date. Shares in European building materials rivals Saint-Gobain (EURONEXT:SGO) and HeidelbergCement (XETRA:HEI) are both down over 30%. 

CRH employs over 70,000 people across more than 3,000 sites in over 30 countries. It’s scheduled to report its first half results on the 20 August. 

ii view:

Four core pillars underpin the company’s strategy to grow and improve: continuous improvement, focused growth, benefits of scale and developing leaders. 

The group’s business portfolio refinements led to €700 million of acquisitions and €2 billion of business disposals of the course of 2019. CRH has been focused on profit margin expansion, cash generation and enhanced returns for shareholders – a total of €1.8 billion has been returned under the share buyback programme since it began in May 2018. 

Clearly, Covid-19 has reconfigured those priorities, with cash conservation, like some many companies, now the focus. 

As with most companies currently, management are unable to provide 2020 estimates given Covid-19 uncertainty, and, for  CRH, the share buyback programme is also suspended. However, for investors, the group’s strength in North America – the US generated 54% of 2019 sales – and the possibility of government stimulus programmes aimed at infrastructure and construction, do offer big potential positives once economies begin a return to normal.

Positives: 

• Diversified both by product and geographical location
• Potential beneficiary of government stimulus programmes

Negatives:

• Accounting for around 13% of group sales, the UK proved challenging in 2019
• Currency movements can provide headwinds

The average rating of stock market analysts:

Buy