CRH: Strong Pricing Drives Revenue Growth, and Healthy U.S. Backlogs Support Robust Outlook

Narrow-moat CRH CRH reported organic revenue growth of 5% in its trading update for the first quarter, which tends to be the least material quarter for building material manufacturers. While CRH’s top-line growth was weaker than competitor Holcim’s, we attribute this to the latter’s greater exposure to Asia and Latin America, where construction activity is less dependent on the second and third quarters of the year. We remain confident that CRH is well positioned for an increase in infrastructure spending in the United States; this is supported by management reiterating our view that backlogs and bidding activity are strong. We maintain our GBX 3,950/$47.50 fair value estimate and view the shares as fairly valued.

Revenue growth in the U.S. continues to outperform that in Europe, where unfavorable weather conditions added to the gloomier macroeconomic conditions in the region. Pricing for materials such as cement and aggregates remains robust and has helped offset weaker volume. We expect the trend of U.S. outperformance to continue, driven by an increase in U.S. infrastructure and nonresidential construction spending supported by recent legislation. The outlook in Europe is less rosy, particularly in residential activity, where demand has been affected by higher interest rates. Management guided for first-half sales, EBITDA, and margin to be ahead of the year-ago period.

The group returned $300 million to shareholders through its share-repurchase program, which will be significantly increased over the next 12 months through the $3 billion repurchase program announced in March. The first $750 million tranche will be completed by the end of the second quarter.

As mentioned in our March 2 note, CRH will seek formal approval to move its primary listing to the U.S.