Should I Buy CRH?


LONDON -- It's been a tough few years for the construction industry, as you can see from the share price of buildings materials group CRH . It is down 27% over five years and 10% over three years, against FTSE 100 growth of 10% and 26%, respectively. That's a shoddy showing, but maybe things are starting to look up. Is now the time to buy it?

I'm not convinced the global economy is ready to enter the sunlit uplands of recovery, but a 33% rise in the CRH share price over the past 12 months looks promising. Yet its recent interim management statement, published last month, was downbeat, recording a 12% drop in like-for-like European sales between January and April, which it blamed on the "weak economic backdrop and prolonged winter conditions". Things were better in the U.S., unsurprisingly, although sales were still down 2%, again, on bad weather. Management is hoping for a better second half, including a rise in EBITDA with "underlying positive trends in U.S. expected to offset trading pressures in Europe". I guess that's something.

Materials boys
Other numbers suggest that brighter times lie ahead, although not this year, when earnings per share (EPS) growth is forecast to fall by 2%. In 2014, the forecast is a whopping 37%. So investors have something to build their hopes on. Despite recent disappointments, CRH isn't cheap, trading at 22 times earnings. But then, this is an expensive sector. The average stock in the Construction & Materials sector trades at 41 times earnings. Its current yield of 3.8% is in line with the rest of the sector, however, where yields average 3.98%. Cover is tight at 1.2 times, suggesting little scope for big dividend hikes.

I'm struggling to get excited by this stock. CRH clearly faces plenty of challenges in Europe (who doesn't these days?). Markets such as Spain are more likely to knock down existing buildings rather than build new ones. The group's exposure to fast-growing emerging markets is minimal, although it is growing, for example, in the Ukraine. The U.S. recovery is still in the balance, and that's where its hopes chiefly lie.

A better bet
CRH is on the acquisition trail, spending €385 million on 15 transactions so far this year, which suggests a degree of confidence. It has also been streamlining and selling off assets, which has reduced costs and pay down the debt. Some brokers are bullish, Deutsche Bank has it as a buy with a target price of £15.20. At its current price of £14, that suggests some scope for growth. But for me, the risks outweigh the rewards.

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