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.