Thursday 22 March 2018

Stock pick of the week: CRH

CRH is Ireland’s largest listed company and a diversified building materials group with interests ranging from cement and aggregates to general merchants.

The recent weakness in Europe and the US across the construction landscape has resulted in the stock trading near 12 year lows.

However, we see comfort in current valuation levels. CRH now trades on 0.7x its book value.

Stripping out intangibles from the book value the stock trades on 1.2x vs. its 22 year average of 2.8x.

Based on trough 2010 EPS of 61c (75% decline from 2007 peak), CRH is trading at 17 times versus 15x-25x historical trough multiples. CRH now offers a dividend yield of 6pc

(best in sector) and until 2009 it had increased its dividend for 26 consecutive years. It has never cut the dividend.

CRH also has a comfortable debt position of just 1.7x Net debt/EBITDA, much stronger than peers.

The company could spend €3.5bn on acquisitions over 2 years, which would boost earnings, or alternatively, the company could use some of these funds to buy back stock.

The cost of debt could become a key advantage if credit conditions deteriorate further. As competitors refinance their debt, the higher cost will hit earnings or possibly force them to make disposals, which CRH could capitalise on.

There is no doubt whilst an earnings recovery is going to be sluggish, the stock offers deep value and a compelling dividend for investors with a long term view.

 stock picks are not explicit or implicit recommendations to buy or sell the shares mentioned, under the Market Abuse Regulations 2005. Merrion Stockbrokers may be corporate adviser to some of the shares chosen.

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