CRH Earnings: Full-Year EBITDA Guidance Tops Expectations as Price Increases Persist

Double-digit price increases across product lines supported narrow-moat CRH’s CRH first-half organic revenue and EBITDA growth of 4% and 7%, respectively. We expect that the favorable pricing environment will persist underpinned by an acceleration in infrastructure spending from the $1.2 trillion Infrastructure Investment and Jobs Act, which will support structurally higher profitability. We raise our fair value estimate to $51 from $47.5, which reflects a 2023 EBITDA margin of 17.9% compared with our initial expectation of 16.3%, due to higher selling prices and easing energy costs. However, our GBX 3,950 valuation remains unchanged due to the depreciation of the USD against the GBP. While we confirm our view that CRH is the most defensive of the European-listed building materials manufacturers, we believe shares are fairly valued, having risen 30% year to date.

We attribute CRH’s somewhat weaker first-half operating performance compared with Holcim and Heidelberg Materials to the former’s superior resilience to higher energy prices in the prior year, and thus it faced a tougher comparable. Organic revenue growth of 5% in the Americas outperformed 2% growth in Europe. The difference was most notable in the building solutions segment, which is most exposed to residential construction activity and the negative impact of higher interest rates. Higher selling prices and easing energy costs supported EBITDA margin expansion of 90 basis points to 15.6%. Acquisitions added a further 7% growth to organic EBITDA growth of 7%. We expect CRH will achieve its full-year EBITDA target of $6.2 billion.

As part of its sizable $3 billion share buyback program announced in March, the group will return $1 billion to shareholders during the first half and a further $1 billion is expected before the third quarter, providing an attractive cash yield to shareholders. In addition, a 4% interim dividend of $0.25 per share was declared.