We're still waiting at CRH
Published 07/03/2010 | 05:00
MYLES Lee barely had his feet under the CRH chief executive's desk before he sprung a massive €1.24bn rights issue 12 months ago. At the time, we were led to believe that the rights issue proceeds and the associated borrowing capacity gave CRH up to €5bn of acquisition capacity. Twelve months later, we're still waiting.
On Tuesday, CRH reported its 2009 results. These revealed a 55 per cent decline in pre-tax profits last year to €732m. The decline in earnings (after-tax profits) per share was even more severe at 58 per cent, reflecting the 29 per cent increase in the number of CRH shares as a result of the rights issue. The dilution effect will be even greater this year due to the need to account for the new shares for a full year rather than just 10 months.
While the rights issue cash has given CRH a bullet-proof balance sheet with year-end borrowings of just €3.7bn, compared to €6.1bn at the end of 2008, investors didn't stump up their cash so that the company could trundle along in the slow lane. CRH has got to find a use for this money.
Twelve months ago, the word from CRH sources was that would-be sellers still had unrealistic price expectations and that acquisition prices would have fallen to more realistic levels by the end of 2009. Well the end of 2009 has now come and gone without a deal from CRH.
While analysts are expecting a modest recovery in pre-tax profits to about €1.05bn for 2010, this would still leave earnings per share at less than half of their 2007 peak. Not good enough Myles. It's time for CRH to pull the finger out and use the financial firepower the rights issue gives it to seal a major earnings-enhancing acquisition.