MORGAN STANLEY has revisited its decision of last August to downgrade CRH after spotting a number of positives on the horizon for the Irish-based multinational building materials group.
The broker has re-rated the group from underweight to equal weight. Broadly speaking, equal weight means its analysts believe the company will deliver returns to investors in line with its industry’s average, while underweight means they believe it will underperform relative to this benchmark.
In the near term, Morgan Stanley believes the Irish group will benefit from increased spending on infrastructure and residential building in the US.
On the down side, the broker says non-residential building will not hit its trough until next year. Closer to home, Morgan Stanley reckons CRH’s biggest European market, the Netherlands, will shrink this year.
Presumably these negatives were enough to prevent Morgan Stanley from predicting that the Irish company will outperform its industry’s average this year.
As a consequence, the broker said it preferred the “balance of risk and reward” at other players such as Heidelberg Cement.
The analysts are not a million miles away from the company’s own outlook for 2010, which it delivered last month along with its annual results.
It expects continuing declines in non-residential building this year in the US and Europe. Since the beginning of 2009, CRH has been saying infrastructure spending in the US would pick up this year as the Obama administration’s rescue plan for the economy begins to feed through in a meaningful way.
However, there is an argument for saying there is a bit more to be positive about at CRH than Morgan Stanley believes.
The company’s debts are easily managed, it generates plenty of cash and – for the first three years of the downturn – chief executive Myles Lee and his team have managed to stick to a generous dividend policy, although the increases in its payouts have been nowhere near what they were in the early years of the decade.
It also has the resources to begin picking off decent acquisitions at reasonable prices.
