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CRH rides the US infrastructure boom

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  • Continuing net margin increases
  • Expansion in “high-growth” Texas market

It’s probably unrealistic, or perhaps even unfair, to judge CRH’s (CRH) performance on a single set of figures. After all, about half of the building materials supplier’s revenues are linked to government infrastructure spending, while a significant proportion of the remainder is due to non-residential sectors. This not only stretches top-line visibility, but it also reduces the group’s sensitivity to interest rate changes. The business model encourages investors to stretch their horizons, too.

The outcome for 2023, though mixed, was broadly positive. Revenue generation was impressive in isolation, but came up slightly short of market expectations. Nonetheless, CRH continues to innovate, adding weight down the value chain, enabling it to post adjusted cash profit growth of 15 per cent to $6.18bn (£4.87bn) on a 120 basis point increase in the underlying margin to 17.7 per cent. Perhaps more revealingly, the net profit margin from continuing operations increased by 70 basis points to 11.7 per cent, an impressive rate by industry standards and testament to the group’s ability to mitigate inflationary pressures.  

CRH is not standing still, having invested in further strategic bolt-on acquisitions. Agreement was reached in November to acquire a portfolio of cement and ready-mixed concrete assets and operations in the “high-growth” Texas market for $2.1bn. By contrast, CRH has also agreed to sell its European lime operations for $1.1bn. Unsurprisingly, net debt increased in the period, but management remains committed to improving cash returns to shareholders, including the latest tranche of share buybacks.

Adjusted cash profits of $6.55bn-$6.85bn are expected in 2024. The switch of allegiance to the US is understandable given high rates of state and federal infrastructure funding, even as new-build residential activity remains subdued. The forward rating of 16 times consensus earnings is not unrealistic given medium-term growth prospects and the continued cash returns. Buy.

Last IC view: Buy, 4,933p, 30 Nov 2023

CRH (CRH)        
ORD PRICE: 6,560p MARKET VALUE: £45.3bn
TOUCH: 6,556-6,562p 12-MONTH HIGH: 6,718p LOW: 3,736p
DIVIDEND YIELD: 1.6% PE RATIO: 19
NET ASSET VALUE: 3,023¢* NET DEBT: 26%
Year to 31 Dec Turnover ($bn) Pre-tax profit ($mn) Earnings per share (¢) Dividend per share (¢)
2019 28.1 1.66 243 92.0
2020 27.6 1.66 143 115
2021 29.2 3.10 306 121
2022 32.7 3.46 358 127
2023 34.9 4.01 436 133
% change +7 +16 +22 +5
Ex-div: 14 Mar      
Payment: 17 Apr      
£1 = $1.26. *Includes intangible assets of $1.02bn, or 1,478¢ a share.
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