Who’s next? Big Apple takes bite out of Irish market with CRH and Flutter moves

Market Beat: The direction of travel set by the two heavyweights can hardly be seen as good news for Euronext Dublin

The reaction among investors was unambiguous and swift when CRH, the largest company on the Iseq, revealed on Thursday it plans to move its primary stock listing to the US and accelerate its share buyback programme. Its stock jumped as much as 11.7 per cent during the day, adding €3.89 billion to its market value.

Few would have been happier than 4 per cent-shareholder, Swedish activist investor Cevian Capital, which first disclosed it had built up a stake in 2019 and has been pressing ever since for the company to reach its “full potential”. (CRH’s shares have almost doubled since Cevian made its presence on the shareholder register known.)

CRH has been laying the groundwork for a US listing for some time, having moved from reporting figures in euros to dollars three years ago, given the world’s largest economy, where it is the biggest roadbuilder, had become its main source of profits. North America accounted for three-quarters of the group’s $5.6 billion (€5.3 billion) of earnings before interest, tax, depreciation and amortisation (ebitda) last year.

The hope is that CRH will benefit from how US stocks typically trade at a premium, relative to earnings, to their European peers.

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Thursday’s stock jump doesn’t even begin to close the gap, Ian Hunter, an analyst with Cantor Fitzgerald Ireland, said in a note to clients on Friday, noting that with the company trading at an enterprise value of 7.9 times ebitda, it is still changing hands at a 26 per cent discount to peers, who are predominantly based in the US.

“We believe that given its current positioning in the market, growth prospects and balance sheet strength, it should at least trade at or close to parity,” he said.

CRH group chief executive Albert Manifold has also pitched to investors that a US listing would help the group to capitalise on massive US infrastructure funding and subsidies initiatives – under the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act that have been signed into law by president Joe Biden in the past 16 months.

CRH isn’t alone. Flutter Entertainment, the owner of Paddy Power and Betfair, said in the middle of last month that it was looking at taking on a US stock market quotation. The expectation is that it will eventually move its main listing there – enabling it, like CRH, to chase the prize of being included in influential US stock indices.

The huge success of FanDuel, the fast-growing US fantasy sports website in which Flutter accumulated a 95 per cent stake since the country’s supreme court moved in May 2018 to strike down a federal law banning the commercial sports betting, is gradually pulling Flutter’s centre of gravity across the Atlantic. The US accounted for a third of total revenues last year of £7.7 billion (€8.6 billion).

Both CRH and Flutter, led by chief executive Peter Jackson, seem happy to shrug off the cautionary tale offered by Fyffes spin-off Total Produce. It ditched its Irish listing in mid-2021 in favour of the Big Apple as it merged with Dole Foods to create Dole plc, only to see its stock slump 40 per cent by the end of last year.

CRH, formed in 1970 through the merger of the already publicly quoted Irish Cement and Roadstone companies, had already moved its primary listing to London in late 2011. The merger of Paddy Power with Betfair in early 2016 saw the combined entity also opt for the UK capital for its main listing (before the corporate name change to Flutter).

Both CRH and Flutter plan to keep their headquarters and tax residency in Ireland. And stockbrokers in Dublin are clinging to hopes that both companies will also keep their secondary listings here. Dublin, they argue, has become a more important hub for European investors to trade the stock since Brexit.

But the developments raise further questions about the future of the Euronext Dublin cash equities market.

A triple whammy over the past two decades of Irish pension funds being pressed to lower their exposure to Irish equities, foreign takeovers of the main local investment players, and a shift by the industry from active stock-picking to passive investment, has conspired to make initial public offerings (IPOs) less attractive.

Only three companies – Uniphar, Corre Energy, and HealthBeacon – have floated in Dublin in the past four years. The further diminution of the Irish market by the moves by CRH and Flutter is hardly encouraging.

Keeping companies on the market has been even more difficult. Green Reit, Hibernia Reit, CPL Resources, Applegreen and Yew Grove have been acquired off the market in the past four years. Aryzta and Tullow Oil have scrapped their local listings.

Who else might have their eyes on the attractions of Wall Street? Glanbia, the purveyor of protein shakes and bars through the Optimum Nutrition and SlimFast brands, has to be top of the list, having said this week that it is changing the currency in which it reports its figures to dollars. Some 82 per cent of its revenues were generated in the US last year.

Kerry Group, which had been plotting moving its main listing to New York when it was in talks in late 2019 to buy a US nutrition business, currently generates almost 40 per cent of its sales in that market.

It hasn’t been missed that Albert Manifold and Peter Jackson have been the two best paid Iseq CEOs in recent times and each has seen his remuneration receive push-back from shareholder advisory firms in the past. This will be less of issue when the companies are trading on Wall Street.

It might be too late for Manifold, who received a record €13.9 million package for an Iseq company in 2021 and is on track to see his contact come to an end next year when he reaches 62. Not so for his successor.