Irish construction sector ‘underrated’

THE Irish construction sector is underrated relative to its global peers, new analysis concludes.

CRH has been the best performing company over five years. Yet, it is valued at little more than 60% of its US counterparts.

That, says Davy Stockbrokers, in a 24-page review, is unlikely to persist and CRH is rated a strong investment bet.

Overall the brokers point to the healthy state of the Irish construction sector and suggests the current ratings of others such as McInerney, Kingspan and Grafton are merited on the basis of future earnings.

While they may appear to be historically high ratings Davy say these valuations are “not so racy when forecast earnings growth is factored into the equation.” Grafton is singled out by the group worthy of serious attention based on present prospects in its Irish and British markets.

Even in the British context prospects for the housing market are not bad and overall the brokers conclude Irish companies involved across the construction area will more than hold their own.

CRH is currently valued at just 11.4 times of its current forecast earnings, which is a discount of 16% to projected average earnings for the group.

That stands in contrast to 7% premium enjoyed by Vulcan Materials and Martin Marietta in the US, who have not performed as well as CRH. It bears out the point that CRH cannot go on being ignored.

Another critical element of the assessment of Irish firms is the conclusion reached by Davy that the new accounting practices will have little impact on overall profits in years ahead. Since March, construction stocks have softened with the Irish players shedding 5% on average against a modest 0.5% decline for the European sector and an overall gain of 0.8% for the Irish market. But construction companies produced a strong start to the year and at this stage are still up 12.7% against 7.9% for their European counterparts and an overall decline of 2.7% in the value of the Irish stock market.

It is in that market CRH earns 50% of its profits and is well positioned to boost earnings through acquisitions.

In their sectors the brokers have identified Grafton and Kingspan as two stalwarts and while Grafton is rated slightly higher than its British counterparts the brokers still believe it will reward investors who buy in at this stage.

Kingspan is capable of producing earnings growth easily above 10% a year up to and including 2008 and few stocks “in any sector can match its growth prospects”.