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2016 The Great Irish Share Valuation Project (Part II):
Company: CRH (CRH:ID)
Last TGISVP Post: Here
Market Cap: EUR 22,579 M
Price: EUR 27.40
When Albert Manifold kicked off as CEO, it certainly looked like he was planning to right-size a rather stretched balance sheet (I even wondered whether hed launch a rights issue). But its always hugely tempting for a new CEO (esp. the CEO of an Irish corporate icon like CRH), to make his mark as an empire-builder, so that resolve didnt last long Despite announcing a 1.5-2.0 billion multi-year disposal programme in late-2014, 2015 proved to be the year for mega-acquisitions totaling almost 8 billion, primarily the Lafarge-Holcim & C.R. Laurence Co acquisitions. [OK, Manifold did a placing in the end, but only to fund about 25% of the LH deal].
While underlying organic growths now progressing at a very healthy clip (primarily driven by renewed US momentum), we havent reached a point where its easy to determine an appropriate P/E multiple therefore, well use a similar approach to my previous write-up. Noting CRHs two big acquisitions closed in H2-2015, first we need to calculate a post-acquisition revenue run-rate: LH revenues 5.1 billion & the deal closed end-July, so thats a 3.0 billion revenue bump for FY-2016. And CRL revenues $570 million & it closed end-Aug an additional $380 million revenue bump.
CRHs FY-2015 EBIT margin was 5.6%, which compares to a peak 9.9% margin (back in 2007) so relying on the companys actual Op FCF margin (of 8.3%) seems appropriate here for valuation purposes & deserves a 0.75 P/S multiple. [Which seems fair for the incremental acquisition revenue also LH & CRL earn much higher EBITDA margins than CRH, but since CRHs Op FCF margins about 50% higher than its EBIT margin, it seems unwise to specifically adjust margin higher for these acquisitions]. And looking at average FY-2015 debt levels vs. year-end debt of 9.2 billion vs. underlying net interest costs, I estimate FY-2016 net interest cost will be around 366 million (vs. a prior 295 million), which is just over 16% of Op FCF so a debt adjustment no longer seems necessary, bearing in mind CRH also has 2.5 billion cash on hand (also provides cover for a 0.6 billion pension deficit). [OK, props to Manifold hes bloody well cashing his way out of a stretched balance sheet!]:
(EUR 23.6 B Rev + 3.0 B LH + $0.4 B CRL / 1.1115 EUR/USD) * 0.75 P/S / 824 M Shares = EUR 24.53
CRH looks marginally over-valued at this point. But noting the underlying momentum of its US business, and likely cost savings to come from its two major acquisitions, we should hopefully see it grow into its current market cap over the next year. But investors should also be mindful of potential integration and/or (renewed) economic risks here, which could prove challenging for a company thats relatively leveraged at this point.
Price Target: EUR 24.53
For related links/graphs/files, and more TGISVP analyses/price targets: Google the Wexboy investment blog.
"Following the success last year of the first pair of seasonal portfolios, Interactive Investor confirmed last week it would launch two new 2015-16 winter portfolios, the constituents of which would have delivered significant double-digit growth ..."
"The acquisition of â¬6.5 billion worth of assets from Lafarge and Holcim will position LSE:CRH:CRH third in the global building materials market. It also gives the Irish cement company exposure to both emerging and developed markets. With the ..."
(post on if you agree)
Read full longer post:
It is estimated that over 90% of AIM stocks are INFECTED by short-sellers !
Many highly popular stocks are going down even on GOOD NEWS !
# IF you were a short-seller, BLUFFING, (basically manipulating a shares' price) about a company's overvalued share price, you might not want to *draw attention to yourself since you could get accused of stock manipulation. So you would hope (OR PLAN FOR) others to get involved and to present SEEMINGLY GOOD REASONS to short the stock.
You would want to put AS MUCH FEAR INTO 'LONGS' as possible and would use high volume short trading as well as buying to drive the share price down as low as you can and as long as you can. You really want the longs to fold and to get out of the game. If you are consistently seeing sellers overwhelming buyers driving a share price down as a stock seems to be going up, I can assure you it's probably shorts' selling, since longs are totally motivated to sell their shares at the highest possible selling price. #
IT is easier to tank a share price, rather than make it go UP, by short-selling.
RUINOUS to genuine investors.
They may be able to buy in cheap BUT what's the good, if the stock never really recovers?
AND when they have got you all hooked on the 'lovely' new all-time LOW.....They'll SHORT IT AGAIN !
# ChalieHarper - posted on iii
IF a fund owns a large share holding in a firm and is long.... whilst waiting for its end game to materialise, it loans out any number of its shares to a shorter...the shorter then manipulate the share price down making £X amount when short ended.... the shorter then gives the loaned shares back and splits the proceeds 50/50.
They both make cash, probably during a time when not much is happening with the sp. IT's a WIN-WIN for them but BAD news for the pi's who as usual may have sold at a loss because the cash has to come from somewhere. #
The share price of CRHÂ (LSE:CRH) increased by 3% to 1,741p during early trading this morning after the building materials company revealed strong trading for the beginning of 2014, which so far is ahead of last year, while like-for-like ..."
2013 The Great Irish Share Valuation Project (Part XI)
Prior Post: Here (valuation, no commentary)
Price: EUR 16.215
Early last year, I put a EUR 12 odd price target on CRH about 20% below the share price at the time. For the rest of the year, CRHs business was left treading water (vs. steady progress in 2011), and the stock looked like it would hit my target on a number of occasions. However, 2013 has ushered in a powerful rally CRH is now 7% higher than last year, leaving my target price dead wrong
In the Americas, CRH enjoyed 15% & 12% increase in revenues & (adj) EBITDA, respectively. However, this was pretty much wiped out by a 7% & 12% decline in revenues & (adj) EBITDA in Europe, leaving total company results mostly unchanged. Portfolio management was left treading water also, with divestment proceeds actually exceeding the cost of their bolt-on acquisitions. Myles Lee, the CEO, is now planning to cap off a difficult few years by retiring at the end of 2013 a successor is still to be announced.
The underlying (adj) operating profit margin has increased somewhat, to about 5.2%. This is still well shy of CRHs long-term average of 9.9% and considering how Europe continues to lag the US, were obviously some distance away from reaching/exceeding that kind of margin again. On the other hand, CRH is clearly the bluest of blue chips listed on the ISE in fact, its the largest stock listed on the exchange (well, ignoring Allied Irish Banks (ALBK:ID) market cap, which is just a joke!). Despite its international exposure, CRH is probably always going to be the first stock investors & fund managers consider buying if theyre looking for some Irish exposure. Noting that & operating on the assumption margins will eventually converge, a 7.6% average of current/long-term margins might deserve a 0.7 Price/Sales multiple at this point.
Unfortunately, CRHs EUR 4.9 bio of debt remains a worry with underlying interest coverage coming out at a low 3.7 times. This demands a fairly stiff negative debt adjustment to reflect a more sustainable level of debt (based on current operating profit) - Id estimate just over EUR 2 billion is appropriate. Considering CRHs EUR 1.8 bio of cash (which earns sod all) & its (similar) level of un-drawn loan facilities, this adjustment might seem a tad excessive. Possibly, but Id prefer to err on the side of caution I think its far more likely theyll be tempted to buy some growth with the cash, rather than apply it to debt pay-down. Unfortunately, theres a whopping great EUR 0.7 bio pension deficit to factor in also.
Putting all this together, despite the debt haircut, we still have a v decent jump in my target price which leaves CRH looking only slightly over-valued.
CRH (CRH ID)
Price: 1435c Rating: Outperform Issued: 23/05/12 Previous: Neutral Issued: 12/01/12
Upgrading to 'outperform', reflecting balance sheet and cash flow strength; limited
earnings downside NEW REPORT
CRH's share price has fallen by almost 10% year-to-date and has underperformed the sector and its main peers. We believe it is now attractively valued, particularly given the strength of its balance sheet and cash flow. By year-end, we expect CRH to have net debt of less than 2.7bn. This gives it one of the strongest balance sheets in a sector in which many peers still have to dispose of assets. We estimate that 1.5bn of acquisition spend could add 10% to group earnings on a full-year basis and 50bps to group returns. CRH is the only company in the sector to have maintained its dividend through the downturn and the stock now yields close to 4.5%. European construction markets remain weak. This could result in 10% downside to our 2012 forecasts, implying a P/E of 17.3 times. However, US construction markets are continuing to improve, which could provide 5-10% upside to forecasts.
Based on our mid-cycle earnings analysis as well as the group's potential to enhance returns by using its strong balance sheet and cash flow, we believe a price target of 1650c is achievable. We are therefore upgrading our rating to 'outperform' from
Anyone out there? Todays RNS is encouraging IMO. European weather aside, they are performing well with ecouraging growth in USA which will ramp up further as the gov there spends more on infrastructure
Just posted Part III of The Great Irish Share Valuation Project on my blog. I'm setting a Fair Value Price Target for every listed Irish company. So far I've valued about 3 dozen companies, including CRH:
On Friday, President Obama signed into law a spending package including appropriations for Fiscal Year 2012. The package reduces the highway obligation limit to $39bn from last years level of $41.1bn. While this represents a reduction of 5% yoy, it is a significantly better outturn than the Republican Partys original plans for a cut to $27bn. Details of how to fund such a level of spending are yet to be outlined.
Reduced funding for infrastructure is never an ideal situation, however the $39bn funding level as opposed to the Republicans original target, highlights the political sensitivities that come with attempting to reduce funding for labour intensive infrastructure programmes in the current economic climate. With regard to CRH, US infrastructure represents c.25% of Group EBITDA.
a really solid company now paying a 5% dividend. Granted the p/e ratio is on the high side but hopefully thay are coming out of the bottom of a cycle and they are steadily reducing their debt. One to lock away or trade in and out of possibly. all imho.
I have been in and out of these for the last year or so. I bought in about 2 weeks ago at 15.05 with a stop/loss of 14.80 which was met a day later. I am now waiting to see what will happen in the next couple of days before going back in. DYOR.
This is a summary of what my brokers (in Ireland) think of the stock after the results.
CRH has reported interim results today broadly in line with our expectations and its IMS in early July. Revenue for H1 declined 8% to 7,658m (Merrion forecast 7,637m) and EBITDA declined 20% as previously guided to 520m. PBT of 25m, including a 13m gain on disposal, compares to our forecast of 12m, a decline of 77% y/y.
Given the company had already provided detailed guidance, the outlook statement is more important from todays release. The company states that since its July IMS, the performance of the US Materials business has been disappointing with volumes and price weaker than expected. The company attributes this weakness to lower levels of commercial construction and a reduction in state and municipally funded projects. This leads the company to now expect that US$ profits for US Materials will decline yoy in H2 versus its previous expectation of an increase. The commentary around Europe is slightly more positive than the July IMS. In group terms, the company had previously expected an increase in H2 EBITDA versus 2009 (this guidance was reiterated in July). Six weeks later, CRH is now expecting FY EBITDA to decline 10% yoy compared to 2009 EBITDA of 1,803m. Our forecast for 2010 EBITDA is 1,883m increasing to 2,150.5m in FY11.
We will await todays presentation to decide on our updated forecasts but we expect to cut numbers quite severely.
We have a BUY on CRH.
They have had a buy on this stock for the last couple of years - so in that respect they have not changed.
Why do you think it will go to 10. I see the results are bad and that CRH are reducing their guidance for next year by 10%. But is that not now priced in. I haven't a clue on charts so just wondering if you are getting your 10 from that or from something else.
I have been watching CRH for quite a while and am really tempted to buy now at the low 14's. I believe they have results coming up next Tuesday. Can anyone with more more information / opinion let me know if this is a good idea or not. I am looking to make a quick 15% to 20% and believe I could achieve that with CRH.
Holders/Followers will be well aware of this weeks painful retreat in the SP - following RNS that US sales are disappointing.
This mornings Irish "Sunday Independent" runs an article which concentrated on CRH's heavily supported fund raising in 2009 which provided it with a substantial warchest. One which apparently is not being put to 'good' use - apart from a smallish £19m purchase of a Chinese
The article which may have been inspired by a disaffected (how polite I am) institutional investor overtly draws attention to the neeed for the BOD to get cracking with its powerful paper and cash to buy relatively bargain basement assets which remain in the international market place.
CRH has had a nibble in China where the growth story for cement sales is plainly amazing though not all regions are growing at the same rate. Cement is central to not only quality accommodationbut but transport infrastructure too. There is a visibly undervalued cement company quoted (strangely only) in the UK which is going gangbusters in Western China which has some catching up to do in terms of regional development - recognised by the Chinese nomenclatura whose capital investment programmes are formulated to address the infrastructural imbalances.
Time was CRH looked for cash cows and they were mostly in the US. China still looks like an opportunity to me. and its a lot easier than the old ways.
Unfortunately LG, it's not (as I'm sure you know) that simple!
If a company lists on the NYSE it must abide by it's rules, and one of the most basic rules is that all material shareholders must be publically declared within a certain (and very strict) timeframe. That is why I thought it possibly significant that Capital's shareholding might be fairly recent and, if so, that it was a pretty serious foray into CRH; investment companys generally don't suddenly appear and take a $2.5 billion stake in a company where they have no apparent prior holding.
It is a very high percentage of ownership, it would be interesting to see when they started to acquire a shareholding (Yahoo finance does not even list them as an institutional shareholder). I can't remember the limit of ownership they must stay below before a bid must be made for the company but it must be getting close.
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