CRH to look to Americas for continued growth

Cement giant, CRH is likely to focus more on the US in terms of future investment, but a move for some assets being offloaded as part of the Holcim-Lafarge mega-merger hasn’t been ruled out.

In a research note published yesterday in the aftermath of the group’s management dinner in London on Monday night — where chief executive, Albert Manifold and chief financial officer, Maeve Carton updated analysts on the company’s strategic direction — Davy Stockbrokers suggested the Americas Materials division will be a particular investment focus going forward, but also said Eastern Europe could be looked at by management.

“When questioned on the likely focus of CRH’s capital allocation, the Americas and in particular, the Americas Materials division appears to remain a key focus for the group. The US aggregates/asphalt/concrete market remains highly fragmented and although CRH is the largest player within the asphalt market, its market share remains low,” said Davy’s Barry Dixon.

CRH is hopeful of generating around €400m, this year, from its €1.5bn-€2bn non-core asset divestment programme, which further boosts an investment war chest currently valued at around €1.5bn. While management has been silent on a bid for assets due to be sold off to pass the planned merger of French and Swiss cement giants, Lafarge and Holcim, Davy still believes the Dublin-based group is best-placed among the sector to participate.

“It has the deepest pockets, in terms of financial firepower, is a credible trade buyer and has limited overlap in terms of the businesses being sold. We believe that CRH is most likely to be interested in the assets in Eastern Europe, but we would not rule out it looking at the German assets, as part of its broader vertical integration strategy,” said Mr Dixon.

“Longer term, the company is likely to continue to invest in emerging markets, but in a very measured fashion,” he added.

By the end of September, CRH’s overall acquisition and investment spend, for 2014, stood at €170m.

“The CFO reiterated that CRH could spend up to €1.5bn over the next 18 months and still maintain its six times EBITDA interest cover, a key metric in CRH maintaining its investment grade rating. This does not include the expected €1.5bn-€2bn in proceeds from disposals over the next two years. In effect, the company has the potential to spend up to €3.5bn over the next two-to-three years without risking its rating.”

Mr Dixon also pointed out that management said that they would not rule out a short-term downgrade to the group’s rating if an attractive acquisition opportunity were to present itself.

“Clearly, this provides CRH unrivalled financial firepower, within the industry, to pursue returns-enhancing acquisitions,” added Mr Dixon.