Goodbody raises CRH share price target

CONSTRUCTION industry supply giant CRH's share price target has been raised by Goodbody Stockbrokers, who see a potential upside of almost 21% over the next 12 months.

Yesterday, Goodbody analyst Robert Eason circulated an 18-page report on the company in which he raised the company's share price target from €19 to €21.60.

"PBT is expected to be in line with 2002's level of €856m, 4% ahead of our forecasts. Excluding negative currency effects of c. €86m, this implies underlying profits grew by c.17% in H2 versus a 13% decline in H1.

"A second-half acquisition spend of €290m on 20 deals brings the total outlay for the year to almost €1.6bn, which is just off the record of 2000. Importantly, this represents a pick-up in the rate of spend (ie acquisition expenditure as a % of capital employed), which is positive for earnings momentum in the coming year," Mr Eason said.

The Goodbody analyst said a sensitivity analysis of earnings shows that risk to forecasts lies on the upside. "In particular, we estimate that a further €1.5bn of acquisitions would add 7 cent to earnings in the current year or 14 cent on an annualised basis, he added" Mr Eason said CRH is currently trading at the lower end of its historical trading range.

"As a result we believe the market is factoring in more downside risk than upside risk in earnings forecasts. However, our sensitivity analysis shows that the risk does in fact lie on the upside. As a result, we believe the earnings outlook for CRH is improving and therefore it should trade at the upper end of its historical trading ranges. We are therefore retaining our 'buy' recommendation on the stock with an increased price target of €21.60."

Mr Eason points out that acquisitions have accounted for 70% of the company's growth since 1992. The company has acquired close to 140 companies in the last five years.

Mr Eason believes CRH has the capability to add at least 40 bolt-on acquisitions each year and says that an annual acquisition spend of €1 billion a year as very achievable.

CRH shares last night closed at €17.75, down 19 cent, a 1.07% fall on the day.