'CRH share price to jump 25%' on future of sector, Portugal venture

BUILDING materials group CRH will benefit from a better outlook for the Irish construction sector and its new joint venture in Portugal and could see its share price jump by 25%, according to Davy stockbrokers.

Davy analyst Joe Burnell said the broker would upgrade its earnings forecast for CRH and that the share price could reach €22 within a year. CRH closed yesterday at €17.55. Mr Burnell said the predicted slowdown in the Irish housing market did not materialise and this was good for CRH. He said new house completions would match last year's record figure of 69,000 units, 5,000 more than originally predicted.

The company would also benefit from improved non- residential investment, which would deliver 5% year-on-year growth and help offset expected margin pressure in CRH's key product areas.

CRH's recently-acquired 49% stake in Portuguese building materials producer Secil was a positive development, according to Mr Burnell. He said the Portuguese economy was showing signs of improvement and this would deliver substantial operating leverage for the group. CRH had agreed to buy into Secil at a time when it sales were 20% off peak levels recorded in 2002. CRH's profits could be boosted by approximately 3% if Secil could return to its 2002 profit levels, said Mr Burnell.

The dollar's rebound against the euro would also benefit the company, in line with improved sentiment which would drive investment, according to Mr Burnell. CRH generates approximately half of its total sales from America and these would be worth more if the dollar continued to strengthen. Mr Burnell based his estimates for next year on an average dollar/ euro rate of $1.25. But the dollar could appreciate towards the $1.10 level by the end of the year as markets remain unconvinced about the eurozone's economic recovery and the direction of interest rates, Davy said.

Mr Burnell also expected continued activity on the acquisition front and said bolton acquisitions would remain healthy.

CRH has said it is capable of making substantial acquisitions of the same scale as its biggest-ever deal, a €650m investment in Dutch cement group Cementbouw. The company's ability to generate cash flow means it could take on two deals of Cementbouw's scale each year.