ii view: Why CRH shares just hit 12-year high

As American material sales increase, full-year group earnings are now expected to beat forecasts.

Nine-month trading update to 30 September 2019

• Adjusted revenue up 4% to €21.8 billion
• Like-for-like adjusted profit (EBITDA) up 7% to €3.2 billion
• Ongoing share buyback programme - €750 million returned to shareholders year-to-date

Guidance:

• 2019 full-year EBITDA expected to be in excess of €4.15 billion (2018: €3.37 billion)
• Total share repurchases in 2019 to €900 million
• Year-end net debt is expected to be close to €7 billion

ii round-up:

Global diversified building materials company CRH (LSE:CRH) outlined strong nine-month trading and pointed to full-year profit expectations ahead of analysts’ forecasts. 

The share price rose by more than 2% following yesterday’s update.

Operating in Canada, Brazil and over 40 states across the USA and supplying products from aggregates to readymixed concrete, the group’s America’s division led the way. Third quarter like-for-like sales excluding acquisitions and disposals rose by 7%, aided by solid underlying demand and more favourable weather conditions. Adjusted profit (Earnings before interest, tax, depreciation and amortization - EBITDA) rose by 12%. 

Third-quarter like-for-like European sales increased by 5% buoyed by good underlying activity in key Western and Eastern European markets, although in the UK, construction activity continued to decline amidst Brexit-related uncertainty. Adjusted divisional profit improved by 3%.

Finally, third-quarter like-for-like Building Product sales and profit improved by 3% and 6% respectively, helped by product price increases and broadly favourable economic backdrops. 

Full-year 2019 adjusted profits are expected by management to be in excess of €4.15 billion, up from €3.37 billion last year and ahead of the analyst consensus estimate of €4.13 billion. 

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. 

Management’s portfolio refinement remains ongoing, with €700 million of acquisitions and €2 billion of business disposals made year-to-date, while a company-wide profit improvement programme is advancing well. 

For investors, cash generation and a focus on shareholder returns provide attraction, with total share repurchases in 2019 of €900 million expected. Keeping energy costs under control, further positive pricing trends and spending on US infrastructure will only increase confidence in the numbers. However, a forward price/earnings ratio marginally above the 10-year average and a 40%-plus gain in the share price year-to-date offer some caution.  

Positives: 

• Diversified both by product and geographical location
• Continued portfolio refinement

Negatives:

• Vulnerable to a US economic downturn – US accounted for 44% of 2018 sales
• Management highlighted a challenging environment in the UK

The average rating of stock market analysts:

Buy