Interactive Investor

ii view: CRH shares chased higher after profits cheer

24th November 2020 15:43

Keith Bowman from interactive investor

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US residential repair and improvements have been a winner for this building materials giant. 

Nine-month trading to 30 September

  • Like-for-like (LFL) sales down 3% to $20.6 billion
  • Adjusted profit (EBITDA) up 2% to $3.4 billion
  • EBITDA or profit margin up 1% to 16.6%

Guidance:

  • Expects full-year EBITDA to be more than $4.4billion - ahead of 2019 on a LFL basis
  • Year-end net debt is expected to show a significant improvement on 2019

Chief executive Albert Manifold said:

"As we continue to navigate these challenging times, the health and safety of our people remains our number one priority and is a core focus in our business each and every day. Markets continue to be impacted by the global pandemic and while we have seen some lower activity levels, I am pleased to report further improvement in trading performance, with an advance in both profitability and margins. The outlook for the coming months remains uncertain and visibility is limited, however, I am confident that we are well positioned for the challenges and opportunities that lie ahead."

ii round-up:

Global diversified building materials company CRH (LSE:CRH) reported a 2% increase in nine-month adjusted profits as it maintained a strong focus on costs in the face of pandemic hit sales. 

The adjusted profit margin rose by 1% to 16.6%, with management now forecasting full-year adjusted profit in excess of $4.4 billion. That's marginally above the current City consensus forecast of $4.38 billion.

CRH shares rose by more than 3%, leaving them up by more than 70% since late March pandemic lows. Shares for European rival HeidelbergCement (XETRA:HEI) are up by a similar amount since late March.

Dublin headquartered CRH employs over 70,000 people across more than 3,000 sites in 30 countries. It operates across the three divisions of American and European materials and building products. 

A 4% gain in building materials sales led the way in the third quarter, aided by strong residential repair, maintenance and improvement demand in North America. Stay at home workers have been placing an additional emphasis on home upgrades and repairs. 

Adjusted profit for building materials rose by 5% year-over-year compared with 2% and 3% profit gains for European and American materials businesses, respectively.   

CRH spent $181 million on 14 acquisitions during the nine-month period and completed seven sale transactions, raising a total of $263 million. Half-year results to the end of June saw it declare a dividend of $0.22, up from last year’s interim of $0.20. 

Full-year results are scheduled for early March. 

ii view:

Four core pillars underpin the company’s strategy to grow and improve. These are continuous improvement, focused growth, benefits of scale and developing leaders. Geographically, the USA is its biggest market, accounting for nearly 55% of 2019 sales, followed by Europe at 21% and the UK at 13%.  

CRH has been focused on profit margin expansion, cash generation and enhanced returns for shareholders. However, like many companies, cash conservation has proved a focus. Its share buyback programme was previously suspended, along with all non-essential expenditure. 

For investors, the hinderance to sales from the pandemic and its ongoing shadow over the outlook cannot be forgotten. That said, a continued dividend payment and a historic and forecast yield of over 2% offer positivity. So do hopes of government stimulus programmes aimed at infrastructure and construction, particularly in its core US market. In all, while some caution remains sensible, long-term prospects will likely keep investors interested, especially during dips in the share price. 

Positives: 

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

Negatives:

  • UK activity levels are still below pre-Covid levels
  • Currency movements can provide headwinds

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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