CRH shares upgraded by Merrion as Europe improves
Shares in building materials group have fallen over 9% from their May highs
CRH reported at the end of April that its first-quarter European sales rose by 6 per cent on the same period last year.
Merrion Capital has upgraded its rating on CRH’s shares to “buy” as the market for building materials products continues to improve in Europe and the acquisitive group continues to be reluctance to overpay for deals.
The brokerage had downgraded CRH earlier this year to “hold”, after the shares had surged amid speculation the group’s North American business will be a key beneficiary from increased infrastructure spend under US president Donald Trump. Shares in the company have fallen by more than 9 per cent since early May.
“Given the correction in the share price and relative underperformance, the significant improvement in European construction data and rolling forward our valuation to 2018 [forecasts], we raise our recommendation to ‘buy’ once again and a €35 price target,” said Merrion analysts Darren McKinley and Dylan Simmonds in a note to clients on Wednesday.
CRH reported at the end of April that its first-quarter European sales rose by 6 per cent on the same period last year, while they were flat in the Americas division.
While CRH said in February that it had the capacity to spend up to €3 billion on acquisitions by the middle of 2018, the Merrion analysts welcomed the company’s “reluctance” to purchase US maker of concrete and aggregates, Bluegrass Materials, which was snapped up by New York-listed Martin Marietta last month for a $1.63 billion (€1.41 billion), or 16 times operating earnings.
CRH spent €500 million on deals in the first two months of the year on the other side of the Atlantic, while it raised €400 million from the sale of unwanted assets in Europe.
“Management are focused on capital allocation toward high returns businesses and away from low returns businesses,” the analysts said. “Equally though, management are reluctant to pay a premium upon acquisition.”
Shares in CRH rose 1.4 per cent to €31.30 by close of trading in Dublin on Wednesday.