Our Investment Thesis for CRH Is Firmly Intact After Fiscal 2022 Outperformance and $3Bn Buyback
Shares in narrow-moat CRH CRH have surged 10% at the time of writing following the announcement of its full-year results, which were in line with our expectations. However, the announcement of a $3 billion share buyback has excited investors given that its capital return policy was an area, which lagged some of its peers despite CRH’s superior operating performance. We attribute CRH’s superior organic profit growth of 12% to its more diversified product mix (with less exposure to energy-intensive cement production), despite similar levels of top-line growth compared with its peers. While we plan to tweak our forecasts, we don’t expect a material change to our GBX 3,950 fair value estimate. CRH remains our preferred pick in the sector due its superior outlook resulting from a significant exposure to an acceleration in U.S. infrastructure spending.
Organic sales grew 12% during fiscal 2022, in line with peers, and was largely driven by strong double-digit price increases. However, like-for-like EBIT growth of 12% outperformed its Europe-listed peers where the group was less affected by higher energy prices due to its lower exposure to Europe (where energy inflation was most severe) and cement production. We expect CRH’s outperformance to continue, with the group set to benefit from recently signed U.S. legislation, which will support demand for infrastructure and commercial construction.
The newly announced share buyback combined with its 5% dividend increase to $1.27 per share translates into a highly attractive 12% cash return yield (dividend plus buyback) before the March 2 price movement.
The group also announced that it will propose to move its primary listing to the U.S., which makes strategic sense given three-quarters of the group’s profit are from the region.
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