Company Reports

Narrow-moat CRH's first-quarter organic revenue growth of 1% outperformed its Europe-listed peers, reinforcing our view that it is the most defensive pick in the sector. Outperformance was driven by 13% organic growth from its American Materials division, which is supported by recently signed US legislation, underpinning strong demand for infrastructure and commercial construction in the region, as well as larger-than-usual order backlogs. The first quarter is the least significant for the sector, and therefore, management has maintained its full-year guidance, which remains superior to Holcim and Heidelberg Materials at the end of the first quarter, due to CRH's greater exposure to US infrastructure spending. Shares are trading in overvalued territory to our $68 fair value estimate, which we maintain.

Narrow-moat CRH’s stellar fiscal 2023 results and superior guidance to peers reflect why we believe it is the most defensive of the (traditionally) listed European building manufacturers. Price increases in the mid to high teens for building materials underpinned its 14% EBITDA growth year over year, translating into 120 basis points of margin expansion. Large multiyear infrastructure and commercial construction projects, backed by recently signed legislation in the US, combined with recent astute portfolio management, support structurally higher profitability, which underpins the increase in our fair value estimate to $68 per share from $55 (to GBX 5,400 from GBX 4,400). Shares still appear rich, given the 75% rise in the share price during the past year, which we partially attribute to nonfundamental reasons resulting from CRH moving its primary listing to New York.

We commend CRH’s strategic repositioning toward being a one-stop shop for construction customers by integrating upstream and downstream activities. The group is the most defensive of our European construction materials coverage because of its exposure to publicly funded US infrastructure activity. As the largest roadbuilder in North America, CRH is well-positioned to benefit from a 50% increase in funding for highway and road construction as part of recently signed US legislation.

CRH’s proposal to buy 57% of shares in no-moat Australia-listed Adbri for USD 750 million is unexpected. The characteristics of heavy building materials does not lend itself to geographical synergies and CRH has no material business in Australia. However, we view the risks of the deal as relatively low. CRH’s strong financial position will remain intact and its partnership with Barro Group, which already owns 43% of Abri, will provide useful insight into operating in the region. The cash offer in the form of AUD 3.20 per share implies a 41% premium to Adbri’s closing price on Dec. 15, 2023, and a 60% premium to our stand-alone fair value estimate of AUD 2.00 per share. We maintain CRH’s narrow moat rating and $55 (GBP 44) fair value estimate.

We commend CRH’s strategic repositioning toward being a one-stop shop for construction customers by integrating upstream and downstream activities. The group is the most defensive of our European construction materials coverage because of its exposure to publicly funded U.S. infrastructure activity, which will allow the group to better withstand an economic downturn than its Europe-concentrated peers. As the largest roadbuilder in North America, CRH is well positioned to benefit from recently signed legislative acts that will help support construction demand.

Our Exemplary Morningstar Capital Allocation rating for narrow-moat CRH has once again been supported by two recently announced transactions, which will reinforce the group’s exposure to faster-growing end markets without significantly hitting its balance sheet. Shortly after it announced it would be acquiring several cement and concrete assets in the fast-growing Texas region from Martin Marietta, CRH subsequently announced a $1.1 billion divestment of its European lime operations. We view the partial funding of a fairly priced acquisition with divestment proceeds from a business, also at a reasonable price, favorably when the outlook is less attractive. Both transactions reflect a continuation of the group’s strategy of growing its end-market exposure in the U.S., which already stands at 75% of group EBITDA prior to both transactions. Given the low-value/weight ratio of building materials, demand is at the mercy of local economies, the U.S. being one of the fastest-growing regions due to the Infrastructure Investment and Jobs Act, which will accelerate commercial and infrastructure projects. We maintain our recently upgraded $55 (GBX 4,400) fair value estimate and view shares as fairly valued.

Narrow-moat CRH reported 14% EBITDA growth during the third quarter and raised its full-year EBITDA guidance by $100 million to $6.3 billion, exceeding our expectations. Third-quarter organic revenue growth of 2% is largely in line with its European-listed peer group, however, we believe CRH is better positioned than its peers due to its material exposure to accelerating U.S. infrastructure spending. Its $2.1 billion acquisition of assets in Texas further solidifies its exposure to the faster-growing construction regions. We raise our fair value estimate by 8% to $55, incorporating fiscal 2023 EBITDA of $6.4 billion (from $6.2 billion) and structurally higher margins for the business resulting from its favorable end market exposure and recent acquisitions. Our U.K.-listed fair value estimate increases 11% to GBX 4,400, the additional 3% difference being due to currency depreciation against the U.S. dollar. Shares are trading in fairly valued territory.

We commend CRH’s strategic repositioning toward being a one-stop shop for construction customers by integrating upstream and downstream activities. The group is the most defensive of our European construction materials coverage because of its exposure to publicly funded U.S. infrastructure activity, which will allow the group to better withstand an economic downturn than its Europe-concentrated peers. As the largest roadbuilder in North America, CRH is well positioned to benefit from recently signed legislative acts that will help support construction demand.

We commend CRH’s strategic repositioning toward being a one-stop shop for construction customers by integrating upstream and downstream activities. The group is the most defensive of our European construction materials coverage because of its exposure to publicly funded U.S. infrastructure activity, which will allow the group to better withstand an economic downturn than its Europe-concentrated peers. As the largest roadbuilder in North America, CRH is well positioned to benefit from recently signed legislative acts that will help support construction demand.

Double-digit price increases across product lines supported narrow-moat CRH’s first-half organic revenue and EBITDA growth of 4% and 7%, respectively. We expect that the favorable pricing environment will persist underpinned by an acceleration in infrastructure spending from the $1.2 trillion Infrastructure Investment and Jobs Act, which will support structurally higher profitability. We raise our fair value estimate to $51 from $47.5, which reflects a 2023 EBITDA margin of 17.9% compared with our initial expectation of 16.3%, due to higher selling prices and easing energy costs. However, our GBX 3,950 valuation remains unchanged due to the depreciation of the USD against the GBP. While we confirm our view that CRH is the most defensive of the European-listed building materials manufacturers, we believe shares are fairly valued, having risen 30% year to date.

We commend CRH’s strategic repositioning toward being a one-stop shop for construction customers by integrating upstream and downstream activities. The group is the most defensive of our European construction materials coverage because of its exposure to publicly funded U.S. infrastructure activity, which will allow the group to better withstand an economic downturn than its Europe-concentrated peers. As the largest roadbuilder in North America, CRH is well positioned to benefit from recently signed legislative acts that will help support construction demand.

Narrow-moat CRH reported organic revenue growth of 5% in its trading update for the first quarter, which tends to be the least material quarter for building material manufacturers. While CRH’s top-line growth was weaker than competitor Holcim's, we attribute this to the latter’s greater exposure to Asia and Latin America, where construction activity is less dependent on the second and third quarters of the year. We remain confident that CRH is well positioned for an increase in infrastructure spending in the United States; this is supported by management reiterating our view that backlogs and bidding activity are strong. We maintain our GBX 3,950/$47.50 fair value estimate and view the shares as fairly valued.

Shares in narrow-moat CRH have surged 10% at the time of writing following the announcement of its full-year results, which were in line with our expectations. However, the announcement of a $3 billion share buyback has excited investors given that its capital return policy was an area, which lagged some of its peers despite CRH's superior operating performance. We attribute CRH’s superior organic profit growth of 12% to its more diversified product mix (with less exposure to energy-intensive cement production), despite similar levels of top-line growth compared with its peers. While we plan to tweak our forecasts, we don’t expect a material change to our GBX 3,950 fair value estimate. CRH remains our preferred pick in the sector due its superior outlook resulting from a significant exposure to an acceleration in U.S. infrastructure spending.

We commend CRH’s strategic repositioning toward being a one-stop shop for construction customers by integrating upstream and downstream activities. The group is the most defensive of our European construction materials coverage because of its exposure to publicly funded U.S. infrastructure activity, which will allow the group to better withstand an economic downturn than its Europe-concentrated peers. As the largest roadbuilder in North America, CRH is well positioned to benefit from recently signed legislative acts that will help support construction demand.

Narrow-moat CRH’s third-quarter trading statement has reiterated why we view the business as the most defensive in our coverage of European building manufacturers. Third-quarter EBITDA growth of 14% was ahead of sales growth of 13%, a rare feature in the building materials sector this year, which has faced significant cost inflation. CRH’s profit outperformance, compared with Holcim and HeidelbergCement, is largely attributable to its more sizable exposure to the U.S. and light building materials, where cost pressure has been less severe than Europe. We reiterate CRH is our preferred pick and maintain our GBX 3,950 fair value estimate. Shares are currently undervalued, offering investors nearly 20% upside at current levels.

We commend CRH’s strategic repositioning toward being a one-stop shop for construction customers by integrating upstream and downstream activities. The group’s increased exposure to publicly funded infrastructure and repair activity has also proved to be more resilient during an economic downcycle. CRH is well positioned to capitalize on various government stimulus programs.

Narrow-moat CRH's strong first-half performance highlighted why we view the business as the most defensive in our European building manufacturer coverage. Organic revenue grew 12% year over year, in line with its peers. However, we were most impressed by the 90 basis points of EBITDA margin expansion to deliver 13% organic EBITDA growth, despite a challenging cost environment. We've raised our fair value estimate to GBX 3,950 per share from GBX 3,550, mostly due to currency translation, and are keeping our $47.50 ADR valuation unchanged. We reiterate CRH as our preferred pick, offering investors roughly 20% of upside at current levels from our revised fair value estimate and an undervalued play to get exposure to U.S. infrastructure spending.

We commend CRH’s strategic repositioning toward being a one-stop shop for construction customers by integrating upstream and downstream activities. The group’s increased exposure to publicly funded infrastructure and repair activity has also proved to be more resilient during an economic downcycle. CRH is well positioned to capitalize on various government stimulus programs.

Narrow-moat CRH’s acquisition of Barrette Outdoor Living, North America's leading provider of residential fencing and railing solutions, is consistent with its active portfolio management and bolt-on acquisition strategy. We view the $1.9 billion price as fair, which translates into an enterprise value/EBITDA multiple of 10 times presynergies, less than the multiple received for the $3.8 billion divestment of its Building Envelope business, announced in February, which will help fund the deal. CRH’s balance sheet will remain healthy following the acquisition and not impact the group’s ongoing share repurchases. We maintain our Exemplary capital allocation rating and reiterate our GBX 3,550 fair value estimate. We view CRH as the most defensive of the European building manufacturers under our coverage and an undervalued play to get exposure to U.S. infrastructure spending.

Narrow-moat CRH is successfully navigating a challenging macroeconomic environment for manufacturers of building materials. The group announced first-quarter sales growth of 15% and growth in EBITDA margin in a brief trading update. Management expects the positive momentum to continue and has guided for sales and margin growth for the first half of 2022. We believe today’s strong update will help alleviate concerns over the group’s ability to offset surging energy prices since the war in Ukraine. It also reinforces our view that CRH is the most defensive of our European building manufacturers, due to its significant exposure to infrastructure spending in the United States, diversified product portfolio and low exposure to energy-intensive cement production. We believe the current share price is undervalued relative to our GBX 3,550 fair value estimate, presenting a buying opportunity for investors.