Ambitious growth plan adds €1bn to CRH market value

By Geoff Percival

CRH’s market value has increased by €1bn on the back of it announcing an ambitious four-year growth plan which could see the building materials giant spend around €7bn on acquisitions.

The news prompted a near-4% rise in CRH’s share price and boosted the Dublin-headquartered group’s market value by over €1bn to €26.7bn.

CRH announced the merging of its European distribution, lightside, and Americas Products units into a new global building products division and said it had started a strategic review of its European distribution business, which has automatically led to speculation of a sale.

It was the targeting of €7bn of financial capacity — after capital expenditure and dividends — that mostly interested the markets.

“This is unparalleled in the sector and provides the company with significant value creation potential,” said Davy analysts Robert Gardiner and Barry Dixon.

“Assuming all of this cash is used for acquisition, it would create at least €12 per share in incremental value. In the unlikely event that all of the cash is returned to shareholders, this could add around 30% to the share price.”

Merrion analyst Darren McKinley said he expects CRH to generate €5bn in extra financial firepower by 2021 and to carry out at least one further €2bn-plus mega deal in that timeframe.

“Assuming the world can avoid major dislocations —such as the EU falling apart or a significant US recession — and applying management guidance to a 2021 outlook, EBITDA could be as high as €5.2bn and earnings per share to a record €3,” said Mr McKinley.

“CRH management also has set a target of improving the group’s EBITDA margin by 300 basis points, from 12% to 12.5% currently. If CRH can deliver on this target, this would be better than consensus estimates.”

CRH generated EBITDA of €3.3bn last year, a rise of 6%.

A month ago CRH announced a plan to return €1bn of excess cash to investors via a share buyback programme, over the next 12 months, and recoup a further €1.5bn-€2bn from the sale of non-core assets.

Its last big spend was the $3.5bn purchase of US cement firm Ash Grove, agreed last year. CRH has spent €150m more on six bolt-on acquisitions so far this.

The €2bn cash generated last year has been earmarked for re-investment in the existing business and dividend payments.

While 2018 continues to be more about integrating €5bn worth of 2017 acquisitions, management recently said its acquisition-led growth strategy is likely to remain in place for decades.

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