Albert Manifold, CRH’s chief executive of a decade, hasn’t looked back since he took the building materials and services giant off the Irish stock market and shifted its primary listing from London to Wall Street last September.
The market value of the company had already risen 46 per cent between the move – to breach the equivalent of €50 billion for the first time – and the unveiling of its 2023 results on Thursday. It jumped a further 6.3 per cent on the day to $58.2 billion (€53.9 billion)
With CRH it’s easy to be bedazzled by massive numbers. Revenues rose 7 per cent last year to $34.9 billion, adjusted earnings before interest, tax, depreciation and amortisation (ebitda) jumped 15 per cent to a record $6.2 billion (beating market expectations by 3 per cent) and are now forecast to grow this year to as much as $6.85 billion.
The company has spent a bit more than $7 billion on share buy-backs over the past six years, retiring a fifth of its stock, even as it forked out further billions on mergers and acquisition (M&A) deals. And Manifold said the company would have the firepower over the next five years to spend $35 billion on acquisitions, investment in growth and cash returns to shareholders.
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[ CRH shares hit record high on upbeat outlook and €32.3bn spending plansOpens in new window ]
But it’s the small numbers that should really impress. CRH has managed to expand its ebitda margin in each of the last 10 years to 17.7 per cent – more than doubling over the period. Operating profits have surged from 6 per cent of net assets to more than 15 per cent.
This is a result of Manifold transforming a price-taking business that essentially crushed big rocks into cement, aggregates and asphalt, to one that has moved up the value chain.
As the largest roadbuilder and a major infrastructure provider to the utilities sector in North America – where CRH is generating three-quarters of its earnings – the group is now involved everything from providing base materials to planning, design, engineering and contract services. This gives it much greater pricing power. US federal and state spending on infrastructure is currently running at “unprecedented” levels, Manifold reminded analysts on a call on Thursday. Investment is also running strong in Europe.
CRH’s non-residential business on both sides of the Atlantic is being driven by a trend of large companies, mainly in the biotech, pharmaceutical, computer chip-making and electric-vehicle batteries sectors, bringing manufacturing back home from low-cost locations. Again, the group is winning projects with its ability to design, manufacture and install.
It’s vertically integrated business model and ability to infiltrate into all stages of major projects helped it increase prices – and margins – last year against a backdrop of general heightened inflation.
The evolution of the business over the past decade has involved Manifold acquiring $25 billion of businesses, while selling off $13 billion of underperforming or unwanted assets, including its low-margin builders merchants businesses in Europe and the US.
[ CRH completes $2.1bn acquisition of cement and concrete assets in TexasOpens in new window ]
The group’s ongoing exposure to residential construction – the source of about one-third of total sales – is the only part that remains weak, as a spike in interest rates in the past two years has hit affordability. Still, Manifold reckons activity could start to pick up again from the back end of this year, after major central banks start to cut official borrowing costs.
The surge in CRH’s share price since the move of its main listing to Wall Street has occurred even as passive investors that track major stock indices were forced to dump CRH stock as it dropped out of the FTSE 100, Euro Stoxx 50 and lesser-followed Iseq 20. The company reckons that 12 per cent of its shares changed hands over the space of a few days in September as a direct result of the European indices exits.
CRH is now what you’d call an index orphan. While it has designs on joining the S&P500, components of the most-widely used US stocks benchmark are selected by a committee that has its own way of working, even if it looks at key criteria like a company’s market value, trading volumes and main listing. The hope is that it joins the index later this year.
Manifold estimates that the equivalent of about one-quarter of CRH’s stock will need to be hovered up by index trackers and closet index huggers once it joins key US benchmarks, which, all things being equal, should support the stock.
[ CRH’s move to New York stock market justified by share price rallyOpens in new window ]
The recent share price run, however, has left it trading at a premium to the average $80.60 price target of 24 analysts that cover CRH, according to Bloomberg data. Still, some are now working on their Excel sheets again in light of the company’s upbeat outlook.
Bank of America analyst Arnaud Lehmann, for one, has moved his price target to $91.
Manifold’s employment contract currently runs until he hits 62 later this year. While the company highlighted in its 2021 annual report that a board committee was working with executive search firm Egon Zehnder on chief executive succession plans, including development programmes for potential internal candidates, observers say Manifold does not give off the vibe of anyone planning to exit any time soon. Investors, too, would like to see continuity for a period after the Wall Street debut.
Having long been the highest-paid Iseq executive (with total remuneration topping €12 million in 2022), he could enjoy an even more a lucrative US-style package with an extended contract.
Manifold told shareholders at CRH’s annual general meeting last April that the company was now “a de facto” US company. Might it break with tradition and select an American as its next boss?
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