Sunday 20 October 2019

CRH should spin off its €15bn US wing after Vulcan deal

MARTIN Marietta's hostile takeover bid for rival US building materials group Vulcan demonstrates just how undervalued CRH's American operations now are. Martin Marietta is offering a total price -- including assumed debt of $2.7bn -- of $7.4bn for Vulcan, the equivalent of 19.5 times EBITDA (earnings before interest, depreciation, taxation and depreciation).

News of the bid had analysts reaching for their calculators to redo their sums on CRH. In the light of the Vulcan takeover offer, how much are CRH's American operations worth?

Last year CRH's North American operations had sales of €8.1bn and EBITDA of €780m. If one applies the Vulcan valuation to these businesses then they should be worth somewhere in the region of €15.2bn.

Unfortunately, at Friday's €13.47 share price the whole of CRH is valued at just €9.7bn. Even when one adds CRH's expected year-end debts of less than €3.5bn that translates into a total enterprise value of just over €13bn.

In other words, based on the Martin Marietta offer for Vulcan, the markets are assigning a negative value to CRH's European businesses. With these businesses having combined 2010 sales of over €9bn and EBITDA of €835m this is clearly an absurd situation. Unless Myles Lee can find a way of unlocking some of CRH's value he may find a predator ends up doing the job for him.

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