CRH PLC (LON: CRH)  

CRH PLC is an FTSE 100 listed Company operator of the building materials business in North America and heavy side materials business in Europe. Moreover, the products are used in construction projects ranging from foundations to frame and roofing, to fitting out the interior space and improving the exterior aesthetic, to on-site works and infrastructural projects, including roads and bridges.

On 23 November 2021, the Company will release a trading update.

Recent trend of dividend payments

CRH had distributed regular dividend payments for the last five years. Moreover, it had paid an interim dividend of 23 US cents per share on 08 October 2021 with an ex-dividend date of 09 September 2021. It represented a year-on-year increase of around 4.50%.

(Source: LSE; Charts created by Kalkine Group) 

Growth Prospects

• Strong Pipeline: CRH had invested around USD 1.10 billion year-to-date towards the expansion through the strengthening of the acquisition pipeline.

(Source: Company presentation)

• Share Buyback Program: The Company had distributed approximately USD 2.3 billion to shareholders under the share buyback programme since commencement in May 2018.
• Focus on Resilient Markets: CRH had shifted the focus on public-sector projects, which represented almost 50% of the sales during H1 FY21. Meanwhile, the Company would emphasise on essential RMI (“Repair, Maintenance & Infrastructure”) activity.

Key Risks

• Decline in Construction PMI: The shortage of labour & raw materials had caused a reduction in UK construction PMI from 55.2 in August 2021 to 52.6 for September 2021.
• Supply Chain Disruption: The recent shortage of lorry drivers in the UK had created supply chain disruptions and escalated the freight cost.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Rise in Interest Rates: The recent hawkish comments made by several central governments regarding a hike in the interest rates could make fundraising difficult for the Company.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of CRH PLC.  

BlackRock Advisors (UK) Limited is the most significant shareholder as it holds nearly 54.95 million shares as of 30 September 2021. 

Recent News

Non-Executive Board Appointment: On 28 October 2021, CRH had appointed Mr. Badar Khan as a non-executive Director, with effect from 27 October 2021.

H1 FY21 Financial & Operational Highlights (for six months ended 30 June 2021, as of 26 August 2021)

(Source: Company result)

• Robust Increase in Revenue: The Group sales of USD 14 billion remained around 15% ahead of the prior year levels as the second quarter of 2020 got adversely impacted by the pandemic.
• Strong Increase in Profitability: The profit on the divestment of the Brazil cement operations had enabled CRH to show around 101% jump in the net profit to USD 0.80 billion for H1 FY21, while it was around USD 0.40 billion for H1 FY20.
• Record Cash Generation: The operational cash inflow got increased from USD 1.00 billion during H1 FY20 to USD 1.60 billion for H1 FY21, indicating favourable working capital movements and strong profitability achieved for H1 FY21.
  

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Source: Refinitiv, chart created by Kalkine Group)

On 01 November 2021, at 08:03 AM GMT, CRH’s shares were trading at GBX 3,525.00, up by around 0.54% from the previous day closing price. Stock 52-week High and Low were 3,936.00 and GBX 2,728.00, respectively.

From a technical perspective, the 20-days exponential moving average of GBX 3,488.00 indicates an upside potential in the stock price. Moreover, the MACD line remained above the signal line, indicating an upside momentum in the stock price.

Over the last two years, CRH’s stock price has delivered a positive return of ~23.70%, and it has outperformed the FTSE 100 index (benchmark index) with a return of approximately negative 0.53%. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company had reported outstanding H1 FY21 results with robust top-line revenue growth and strong profitability. Moreover, CRH would continue to generate strong cash levels to invest in future growth opportunities for the business. The Company had already invested USD 1.10 billion to expand the business networks. CRH had anticipated H2 FY21 group EBITDA to remain well ahead of the H1 FY21 levels boosted by the current trading conditions and the positive momentum across all geographies. However, the stock price may undergo correction amid increasing Treasury yields and rising inflation worldwide. In a nutshell, the Company aimed to generate lucrative returns for the shareholders with the increased focus on essential RMI activity and a strong pipeline of growth opportunities. 

Considering the bright EBITDA guidance, outstanding bottom-line business growth, record cash generation, strong dividend growth, and support from the valuation as done using the above method, we have given a “BUY” recommendation on CRH PLC at the current price of GBX 3,525.00 (as on 01 November 2021 at 08:03 AM GMT), with lower-double digit upside potential based on 16.17x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.). 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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