CRH has used a string of takeovers in Britain, Europe, Asia and the United States to become a global construction industry leader. While it doesn’t actually slap cement on bricks, it is Europe and America’s largest building materials supplier, with about 3,200 operating locations in 29 countries, employing 73,000 people.
That makes its shares an effective bet on how construction will cope with next year’s expected international recession. Richard Branch, chief economist of the US-based Dodge Construction Network, an industry observer, expects the cash value of commercial building of all sorts to have mushroomed by 24 per cent this year but thinks it may shrink by 3 per cent in 2023. “We’re walking the razor’s edge,” he said.
Nevertheless, last month CRH affirmed its $5.5 billion full-year earnings forecast for 2022, which would be a 10 per cent improvement on 2021. The slowdown is underlined by comparing that with the group’s nine-month numbers. Sales grew by 13 per cent to $24.4 billion and earnings before interest, tax and other charges were up 14 per cent at $4.2 billion.
Albert Manifold, the chief executive, echoed Branch’s caution. “There’s probably a greater level of uncertainty than has been for the last couple of years and our experience tells us to perhaps cool our jets a little bit,” he said. “We want to keep our balance sheet and keep capacity there, because the time to do deals is actually when we start to exit any phase of uncertainty.”
The Europe Materials division has already buckled under pressure from dearer energy and the dollar’s surge against the euro. The currency trend has reversed in the past few weeks, but not in time to prevent the division’s pre-tax earnings falling by 19 per cent in the July-to-September quarter, after a 4 per cent rise in the first six months, when higher prices kicked in.
Earnings from the American operation, benefiting from the Biden administration’s huge roadbuilding programme, grew by 8 per cent in the first nine months. The outstanding performer was Building Products, making a range from precast concrete pipes to patio crazy paving, with a 57 per cent profits increase. That is all the more creditable, given that housebuilding has been hit by higher interest rates, but renovation and maintenance have kept the tills ringing. Happily for CRH, many American firms are moving foreign production back home, including Intel and Samsung spending billions on new semiconductor plants.
The group’s fondness for corporate trading has continued unabated, spending $3 billion on 21 acquisitions until September 30 this year, $1.9 billion of the total going on Barrette Outdoor Living, an Ohio-based residential fencing and railing company. That has been outweighed by $4 billion in asset sales.
Although Manifold has hinted that the deal flow may ease next year, last week he announced a new venture capital unit to “support the development of new technologies and innovative solutions to meet the increasingly complex needs of customers and evolving trends in construction”. CRH Ventures will have an initial $250 million purse, tiny compared with the group’s £24 billion stock market value, but the group clearly is itching to pour in more money as required.
Two years ago this column recommended buying the shares at £29.86 and they rose to £39.15 by the start of this year. They lost ground as Russian troops massed on the Ukrainian border in January, but, after dipping below £30, have recovered to £33. That is an undemanding 11.7 times predicted earnings and offers a useful 3.1 per cent dividend yield. A $300 million share buyback plan is operating from now until the end of March, which will help to underpin the price.
ADVICE Hold
WHY The dividend is solid, but do not expect much from the share price for a while
Domino’s Pizza Group
When food banks are busier than ever and supermarket shoppers are ditching items at the checkout, pizzas might seem an expendable luxury. But, just as beer sales jump in glum times because drinkers want cheering up, so takeaways become a treat.
Empty pizza restaurants suggest some people have traded down to the likes of Domino’s, which owns the UK and Ireland franchise and is a separate entity from the American parent. This column rated the shares a “hold” at 335p in August 2020 and they made encouraging progress until last Christmas, reaching a peak of 458p. Yet the well-documented problems of 2022 — Ukraine and inflation — took the price back to 220p three months ago. Since then the shares have climbed back to about 290p, helped by the company putting its products on the Just Eat delivery system.
Sales are partly event-driven. It mixed enough dough to bake a million pizzas for the England v France World Cup quarter-final, so investors will want to know how Domino’s performed during the football tournament. The hints are promising. England’s quarter-final exit may have knocked a little off sales, but there was enough interest in the semi-finals and final to have kept the pizza ovens fired. The cold weather will have done no harm.
Next year, the group plans to add another 50 UK stores to its existing 1,190, capitalising on the predicted decline in inflation. After a rebellion by franchisees a couple of years ago, contracts have been tweaked to impose national pricing and promotions and to pass on more raw material costs. However, it is easy for others to enter the market. If Starbuck’s recent decision to nibble at pizzas takes off, other coffee shop chains may follow.
Based on the company’s projected earnings before interest, tax and other charges of £125 million to £135 million for 2022, the price/earnings ratio is 14.9 and likely dividend yield is 3.3 per cent. Investec reckons pre-tax earnings will climb to £137.8 million next year and to £147.5 million in 2024.
ADVICE Buy
WHY A solid outlook as the economy recovers