CRH's US arm will give profit lift - Davy
Ireland's biggest company, CRH, is on track to deliver more profits than anticipated next year as its operations in North America fuel growth, according to Davy Stockbrokers.
Analysts reckon that an improvement in CRH's key Americas materials unit has "far from run its course".
Davy believes that CRH, which is headed by chief executive Albert Manifold, will post earnings before interest, tax, depreciation and amortisation (EBITDA) of just over €3.1bn in the current year, and slightly more than €3.3bn in 2017.
The 2016 figure is 2.5pc more than Davy had previously expected CRH to generate.
CRH flagged last month that its first-half EBITDA this year would be about €1.1bn, compared to the €1bn it said last April that it expected to post.
Davy Stockbrokers said its projected EBITDA figure for 2016 at CRH includes that additional €100m guidance, minus a negative sterling adjustment and a more cautious view on the group's UK operations.
The broker said that CRH's improved guidance for the first half was probably driven by a continuation of favourable volume, price and cost dynamics, particularly in the Americas.
Davy pointed out that CRH's peers experienced weaker volumes in April and May due mainly to poor weather in Texas, where CRH's materials division has a relatively small exposure. Peers in products and distribution in the Americas have raised their own full-year expectations, while in Europe, second quarter updates from construction companies have been generally positive, noted Davy.
CRH's materials division in the Americas is the largest producer of asphalt and the third-largest producer of both aggregates and readymix concrete in the United States. It operates in 44 states at 1,200 locations.
"A sharply improved performance in the division has been a key driver of upgrades at CRH group level in recent years," according to Davy analysts, adding that the unit's operating profit has more than trebled since 2013.
Davy said it believes there is significant potential upside at the division.
"Our analysis suggests that organic revenues remain circa 18pc below previous peaks, indicating significant spare capacity," according to analysts.
The Americas Materials unit has also delivered savings of €600m between 2007 and 2014, with about 40pc of those thought to be permanent in nature.
The broker has placed a €32 per share price target on CRH, which last year paid €6bn to buy assets from Lafarge and Holcim, and $1.3bn to buy US glazing products firm CR Laurence.
CRH publishes its interim results on August 25.