CRH, by far the most acquisitive homegrown Irish business ever, has adopted a mindset change in the past decade, in that there are no longer any sacred cows.
Albert Manifold may have spent more than $25 billion (€24.3 billion) acquiring businesses in his 11 years at the helm, which came to an end last month.
But he also raised over $14 billion selling off assets that either were not making enough to justify their existence or were in areas that CRH decided were no longer core — including two large distribution businesses to builders merchants on both sides of the Atlantic.
It’s a discipline his successor Jim Mintern — a one-time CRH country manager for Ireland, including Irish Cement and Roadstone, who would go on to become group chief of staff and chief financial officer — is expected to continue.
North America, which CRH ventured into in 1978 through the purchase of a concrete products company in Utah, now accounts for about three-quarters of group earnings
This has got some investors thinking. Bank of America (BoA) analysts said in a report this week that shareholders are now beginning to discuss the potential for CRH to eventually spin off its operations outside of North America, to focus on what is now, by far, the biggest part of the group.
North America, which CRH ventured into in 1978 through the purchase of a concrete products company in Utah, now accounts for about three-quarters of group earnings before interest, tax, depreciation and amortisation (Ebitda) which is expected to have reached as high as $6.97 billion last year.
The scale and prospects of the business in the US drove a decision in 2023 to move CRH’s primary stock market listing to New York – abandoning in the process its Dublin quotation which can be traced back to 1936 when Irish Cement floated.
BofA has done the maths, estimating that the international unit – led by Europe Materials Solutions – is now worth the equivalent of $13.3 billion (€12.9 billion), or 16 per cent of the total $82.3 billion valuation it put on the entire group.
It isn’t alone. Goodbody Stockbrokers analyst Ken Rumph has also said that CRH’s move late last year to combine its two previous European divisions into a new international unit – which also houses operations in Australia and the Philippines – was likely to raise questions about a potential divestment of non-US activities, including its legacy Ireland business.
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But such a move is highly unlikely in the medium-term at least, according to analysts.
“At the moment it seems like everything is great in North America, as infrastructure spending is strong there,” said Rumph, even as the US housebuilding market, where CRH has limited exposure compared to peers, is weak.
“But there will be a recovery at some stage in Europe. In addition, it isn’t as expensive to buy assets outside of the US.”
Citigroup analysts said in a report this week that Europe has more to go, compared to the US, in terms of pricing, “presenting some upside for CRH”. In addition, it is well poised to benefit from inevitable construction work in war-torn Ukraine, a country it entered 25 years ago.
Aside from the obvious benefits of geographical diversification, the wider group has also gained from the passing on of knowledge and expertise between various markets over the years.
“Europe would have been ahead of America, for example, in terms of using precast products for infrastructure projects, rather than building on-site — partly out of necessity because of the cost of labour,” said Rumph. “CRH was able to bring this expertise across the Atlantic where labour, increasingly, has been an issue in recent times. But learnings work both ways.”
Shares in the company have drifted lower since then, in line with the wider sector, amid concerns that US president-elect Donald Trump’s threatened tariffs against a host of trading partners will stoke inflation and keep interest rates relatively higher for longer
Meanwhile, CRH’s move last year to significantly increase its presence in Australia — acquiring a 53 per cent stake in local building materials group Adbri, in which it previously owned about 4 per cent, for $700 million — would be an unusual one for a group considering a split.
Mintern, in his previous role as chief financial officer, led the transition to a New York primary list of the stock. Shares in the company have jumped as much as 90 per cent since then, to reach an all-time high of $104.32 early last month as it benefited from how US-listed companies tend to trade at higher levels, relative to earnings than those listed in Europe.
Shares in the company have drifted lower since then, in line with the wider sector, amid concerns that US president-elect Donald Trump’s threatened tariffs against a host of trading partners will stoke inflation and keep interest rates relatively higher for longer.
Citigroup analysts said they expect CRH to continue to narrow the valuation gap with US rivals, noting that investors value North Carolina’s Martin Marietta Materials and Alabama-based Vulcan Materials at about 15 times Ebitda [earnings before interest, taxes, depreciation and amortisation] — compared to a ratio of 10 for the Irish company.
To get there, Mintern faces some work to get Wall Street on board with the benefits of its integrated model.
The group evolved under Manifold from largely being a seller of cement and other base materials (which effectively left it as a price taker) into full-scale construction services (where it had more control over pricing). Its Ebita margin has widened from less than 10 per cent in 2013 to more than 23 per cent for the first three quarters of last year.
A big catalyst for the stock over the next 12 months, according to analysts, could come from CRH being accepted into the S&P 500 which would force fund managers that track the world’s most followed stock market index to buy the stock.
Still, there’s no guarantee about when — or, indeed, whether — the fairly secretive committee behind the index might give CRH the nod.
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