CRH earnings could climb by 70%

Earnings at the building materials giant, CRH, are expected to grow by 70% this year, on the back of improving conditions in its main markets and contributions from acquisitions made in the past 12 months.

The Dublin-headquartered group yesterday updated on its acquisition-and-investment spend for 2015; which was dominated by its potentially transformational €6.5bn purchase of a number of global assets, disposed of to allow for the merger of European cement titans, Lafarge and Holcim. In all, CRH made 20 acquisitions last year, spending €8bn.

However, it recouped €1bn, as its non-core asset divestment programme continued.

The company offloaded 29 divisions/subsidiaries last year, as its €1.5bn-€2bn three-year, asset sale-drive became more pronounced and reached the €1.4bn mark.

Most acquisitions were made in the Americas. As well as the Holcim/Lafarge deal, CRH completed 20 bolt-on acquisitions and investments.

“Portfolio management and, in particular, the reallocation of capital from lower growth areas into core businesses for growth, is a cornerstone for our value-creation model,” said its chief executive, Albert Manifold.

In a research note, Merrion Stockbrokers said improving market conditions, and synergies from last year’s acquisition spree, should grow CRH earnings by 69% this year and a by further 16% in 2017.

CRH’s share price was stable, at €25 yesterday. According to Merrion analyst, Darren McKinley, the stock has the ability to move above €28.

“We believe the stock has capacity to surprise on the upside, given the strong possibility of further improvement in European construction activity and synergies from recent acquisitions in North America,” Mr McKinley said.

“With many indicators suggesting Europe is recovering, we think CRH will range trade between €22 and €28, with a break above €28 possible, depending on the risk profile of the broader market,” Mr McKinley added, also noting that Merrion has a December, 2016 price target of €27.50 on the CRH stock.

CRH is aiming to lower its net debt-to-earnings ratio. Debt is currently 3.5 times higher than earnings, and the goal is to cut it to 2.5 times by the end of this year.

“Overall, progress on disposals has been considerable and should provide reassurance regarding the group’s ability to quickly reduce net debt,” said Robert Gardiner, of Davy Stockbrokers.

“The group is now heavily focused on integrating these businesses and reducing net debt,” he added.