ii view: CRH shares near record as cements operations Down Under

Acquisition of Adbri in Australia

Chief Executive Albert Manifold said:

"We are very pleased to announce this potential acquisition of Adbri in partnership with the Barro family. We have held a long-term interest in the Australian construction materials market, which has attractive attributes including stable market dynamics and positive growth prospects, similar in nature to the Southern United States and Central and Eastern Europe where we have a significant presence.”

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ii round-up:

Building materials giant CRH (LSE:CRH) today announced the potential strengthening of its existing business in Australia via a bolt-on acquisition.

Dublin headquartered CRH detailed the proposed purchase of a majority stake in Australian building materials business Adbri for US$0.75 billion, or just under £0.6 billion. 

CRH shares are a fraction lower in UK trading, having come into this latest news up by around 60% year-to-date and very close to an all-time high. French rival Compagnie de Saint-Gobain SA (EURONEXT:SGO) is up 43% and the FTSE-All World index 17.6% year-to-date.   

CRH supplies materials such as cement, aggregates, and asphalt to markets in the US, Europe, the UK & Ireland, and Australia. 

If agreed by Adbri shareholders, the proposed acquisition will leave CRH as joint owners of Adbri, with Australian family-owned business Barro retaining its existing 43% share stake.  

Adbri recently detailed expected 2023 adjusted profits (EBITDA) of between A$310 million and A$315 million. That leaves CRH’s purchase offer representing a multiple of about nine times enterprise value to expected 2023 adjusted profits.

CRH’s management noted: “This acquisition would strongly complement our existing Australian business, creating additional opportunities for growth and development.”

Nine-month results to the end of September saw CRH sales rise of 8% year-over-year to $26.3 billion, driving adjusted profits (EBITDA) up 14% to $4.8 billion. 

ii view:

CRH was formed in 1970 from the merger of Irish companies Cement Limited and Roadstone. Today it employs over 75,000 people across more than 25 countries. The US generates its biggest slug of sales at almost three-fifths, followed by Europe at close to a fifth and the UK at just over a tenth. The Rest of the World and including Australia comes in at around a tenth. Earlier in 2023, CRH moved its primary stock market listing from the UK to the US.

For investors, an uncertain economic backdrop including still elevated borrowing costs and subdued property markets in many parts of the world cannot be overlooked. Costs for businesses generally remain elevated. Acquisitions, such as this latest one, are not without risk, while government finances including those in its biggest market, the US, remain strained, potentially making it harder to increase spending on infrastructure projects.

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That said, government infrastructure spending in the USA remains significant for now, while today's acquisition strengthens its existing Australian business and underlines its geographical diversity. Interest rates, at least in the US, are now expected to fall in 2024, potentially aiding the property market, while more than five years of consecutive annual dividend increases leave the shares offering a forecast dividend yield in the region of 2%.   

While some caution remains sensible, CRH has established a strong market positions in key areas of the global economy such as the US and Europe. Despite the shares having done very well this year, the building materials giant has a solid long-term performance record which should continue to grab the attention of investors.

Positives: 

• Diversified both by product and geographical location
• More than 5 years of consecutive dividend growth

Negatives:

• The weather can hinder performance
• Currency movements can provide headwinds

The average rating of stock market analysts:

Buy