CRH
Cost of acquisition €6.5bn
For CRH, the purchase of a wide range of assets shaken loose by the merger of Lafarge and Holcim genuinely is a once in a lifetime opportunity.
For decades now, the tide in the global building materials industry has been in the opposite direction, towards even greater consolidation, such as the Lafarge-Holcim merger.
But this deal brings with it businesses with earnings equivalent to 40 per cent of those of CRH, so it is truly transformational. CRH now becomes the world’s third-biggest player in that industry.
Albert Manifold, its chief executive, insists that he was happy to bid for the whole lot rather than cherrypick. With a reported 60-odd potential bidders for some or all of the assets, the vendors probably could have required a full disposal rather than go to the trouble of reaching agreement on individual businesses. CRH was able to outbid the various private equity bidders because of the synergies available from putting the assets together with its own. These are set at €90 million annually by year three, or a relatively modest 1.8 per cent of sales, a target that almost certainly will be exceeded. For example, the cement plants being bought will allow the company to source its needs internally.
Now CRH must wait to see how much of the deal attracts its own action from regulators. The company has lined up Kohlberg Kravis Roberts as potential purchaser of any in the UK, given the suspicion that the Competition and Markets Authority may look at its cement interests.
The purchases fit well with existing activities in Europe and North America while taking CRH into new growth markets, such as the Philippines and Brazil. At the same time, the company is about €1 billion into a disposal programme worth €1.5 billion to € 2 billion.
This is about disposing of assets on earnings multiples of eleven or so, while the new businesses are coming in on a multiple of below eight, after those forecast synergies. Mr Manifold believes that the assets are being bought at a trough in the market and can only benefit from structural recovery. The stock market seems to agree. CRH shares were up 115p at £17.18 despite a placing of 10 per cent of the shares at £16.50. The shares look worth buying for the long term.
My advice Buy long term
Why The deal is a genuinely transformational one and is being achieved at a time when many core markets are beginning to improve
RPS Group
50% proportion of profits from energy
Shares in RPS Group have been on the slide since the autumn, when they were approaching 300p, amid concern about the effect of the falling oil price on its energy business, so it is perhaps no surprise that one of the few solid facts in its year-end trading update was some reassurance on that business.
RPS, which is a consultancy that gets half of all earnings from energy, actually managed to increase these in the second half as against the first. Although analysts are expecting a small decline in 2015, this will be more than made up by progress elsewhere, where the company is benefiting from the recovery in the American economy and from housebuilding in Britain.
RPS typically gets much of its growth from a series of bolt-on acquisitions of small consultancies and two more of these have been agreed, one in that North America business.
The company has indicated that dividends for 2014 will be increased by 15 per cent, the 21st consecutive rise of this scale. That puts the shares, up 11¼p at 193¾p, on a yield of almost 4.5 per cent, which should give support. It is an attractive yield but probably the only reason to hold the shares.
My advice Hold for income
Why Shares unlikely to progress but yield attractive
Grainger
Cost of latest purchase £58m
The business model operated by Grainger ought to be one of the most secure in the property sector. Britain’s biggest residential landlord buys properties that may be occupied by tenants on assured rents and then trades them on when they become available.
It is moving increasingly into new-build, putting schemes together itself, such as one in Barking, east London, or buying in newer properties. Yesterday, three days before its next trading update, Grainger announced the £58 million purchase of 614 properties spread nationwide, mainly occupied by short-term tenants and therefore yielding a hefty 7.5 per cent plus.
This lessens its reliance on the southeast, which comprises about 40 per cent of all assets. The shares, surprisingly, have been retreating from about 250p last April because of fears that the London market is becoming overheated, about the impact of Labour’s mansion tax and about the election.
None of these factors should affect Grainger, whose assets are at the cheaper end of the market. The company made the decision to focus more on London and the southeast five years ago and 18 months ago decided to concentrate more on the regions, Neither decision can be criticised for its timing.
The shares, up 7p at 200¾p, trade on a 17 per cent discount to net asset value, as the company assesses it, and well below the 258p forecast by Numis, the house broker, at the September end of the financial year. That discount looks too large; though the dividend yield is not much, the shares should be bought.
My advice Buy
Why Last year’s fall in the share price looks overdone
And finally . . .
The various explorers seeking oil north of the Falklands Islands have confirmed that the Eirik Raude drilling rig has begun its journey from west Africa across the Atlantic and should be available for a six-well drilling programme from the first week in March. Given the long-term nature of the project, it is no surprise that the companies are pressing ahead regardless of the low oil price. The first results of the drilling should focus attention on Rockhopper, Falkand Oil & Gas and Premier Oil over the summer.
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