No matter who wins the U.S. Presidential election on Nov. 3, one of the immediate tasks of the new administration will possibly be to reach across the aisle to kick off higher federal spending on infrastructure projects. Individual states are also likely to put money into construction projects to bolster their economies as well as employment levels.
Last week, we looked at UK-based international Ashtead (LON:), (OTC:), which may benefit from such a development in increased construction spending. Today, we extend the discussion to another member, namely building materials manufacturer and distributor CRH (LON:), (NYSE:).
According to recent research by DataM Intelligence, between 2020 and 2027, “the Global Building Materials Market is expected to grow at a CAGR [of] 4.76%.”
Another report highlights:
“The size of Europe Building Materials Market was registered at US$85 billion in the year 2017 and is anticipated to cross USD $125 billion by 2024. Between 2018-2024, the Europe Building Materials Market is expected to register a CAGR of 5.5%.”
In addition to the U.S., other countries are also likely to increase infrastructure spending to boost their economies in the post-pandemic world. Lower interest rates worldwide will likely help increase revenues in the sector. These developments will possibly help support the share prices of CRH and its peers.
With that information, here’s why the Dublin-headquartered global building materials group CRH deserves to be on investors’ radar.
Growing U.S. Operations
In late August, CRH reported for the six months that ended on June 30. Sales revenue came at $12.2 billion (£9.42 billion), meaning like-for-like sales in the first half declined 3% year-on-year (YoY).
The company reports revenue in three segments:
- Americas Materials (like-for-like EBITDA was up 20% YoY);
- Europe Materials (like-for-like EBITDA was down 28% YoY);
- Building Products (like-for-like EBITDA was down 11% YoY).
Its products and services include aggregates, asphalt, cement, ready-mixed concrete as well as paving and construction services.
CEO Albert Manifold was pleased with the results, and said:
“Our ability to flex our cost base and deliver improved profitability, margins and cash generation in a rapidly evolving environment demonstrates the strength and resilience of our business.”
Management was unable to offer short-term guidance for the rest of the year. Understandably, an increase in the global economic contraction is a threat to the industry and the company. The UK operations may also suffer from uncertainties related to a no-deal scenario in the ongoing trade talks between the UK and the European Union.
Nonetheless, analysts concur, CRH stock could potentially benefit from stimulus measures in a range of countries. The board maintained the interim dividend. The current price supports a dividend yield of 2.3%.
On Oct. 13, CRH shares closed at 2,986p (about $38.75 in the U.S.). So far in the year, the stock is about flat. However, since the multi-year lows hit in March, the shares have more than doubled.
Its forward P/E and P/B ratios stand at 13.53 and 1.15, respectively. Following the release of the interim results, UBS reaffirmed its buy investment rating on the stock, raising its price target to 3,230p.
CRH deserves to be on investors’ post-election shopping list. In addition to benefitting from any U.S. government spending boom, the stock could also be a proxy to play the potential economic recovery in the rest of the world. We would look to buy the dips, especially if the price declines toward 2,800p (or around $36 in the U.S.).
Those investors interested in the industry’s prospects may also want to research several other stocks or exchange-traded funds (ETFs). The list includes companies such as Cemex (NYSE:), Eagle Materials (NYSE:), James Hardie Industries (NYSE:), Martin Marietta Materials (NYSE:) and Vulcan Materials (NYSE:).
Among the possible ETFs are the First Trust Global Engineering and Construction ETF (NYSE:), Invesco Dynamic Building & Construction ETF (NYSE:) and the SPDR® S&P Global Infrastructure ETF (NYSE:).
Finally, several ETFs also have CRH as a holding, such as the Pacer Developed Markets International Cash Cows 100 ETF (BATS:ICOW). We plan to cover some of these funds in the future.