CRH lifts first-half profits by a quarter

Irish building materials group CRH has warned the eurozone debt crisis continues to undermine consumer and business confidence and will drag its sales in the region down sharply during the second half of the year.

The Dublin-based company, a bellwether for the state of the global economy, said sales in Europe fell 5 per cent in the first half of 2012 and predicted the drop would accelerate over the next six months.

Shares in the company fell 4.8 per cent to close at £11.60 in London, giving it a market capitalisation of £8.4bn. Several analysts said they would downgrade their full-year earnings forecast for CRH.

Myles Lee, CRH chief executive, said: “Problems in the eurozone, which have intensified over the past six months, continue to erode consumer and business confidence in the wider European economy.”

The worsening macroeconomic outlook for Spain and restructuring measures undertaken in that market by the company prompted CRH to record an impairment charge of €130m on its 26 per cent investment in Spanish associate Uniland.

Overall CRH revenues for the period were €8.6bn, up €422m on the same period of 2011, the result of an 8 per cent increase in like-for-like sales in the US and a 5 per cent fall in Europe. Earnings before interest, tax, depreciation and amortisation fell from €574m in the first six months of last year to €568m.

A better than expected improvement in the US construction market in the first quarter and the disposal of its stake in Portuguese cement company Secil for €564.5m in May helped CRH report pre-tax profits of €117m for the first half of 2012, an increase of 23 per cent on the same period last year.

Davy Stockbrokers, CRH’s broker, said the results reflected a more cautious and realistic view of the European construction sector and it would trim its earnings forecast by 5-6 per cent.

“While the company continues to have one of the strongest balance sheets in the sector and its robust cash generation will continue to support an unchanged dividend, the valuation is pricing in an imminent recovery in construction markets which at the moment is difficult to see,” said Davy.

Ian Osburn, analyst at ING, said CRH’s management outlook had become more bearish and the “realities of the sector” were catching up with CRH after a period when it had outperformed.

CRH confirmed it was in talks with Jaypee Cement – the third biggest cement producer in India – that could lead to the purchase of an equity stake in the company’s Gujarat cement business.

The Irish company said it would maintain its dividend at 18.5 cents.

Comment:

CRH’s status as a bellwether means it continues to be buffeted by the uncertain global economic environment, particularly in Europe where it expects sales to fall by more than 5 per cent in the second half of 2012. A better than expected start to the year in the US and a strong dollar helped cushion CRH somewhat during the first six months of the 2012. But with slower growth forecast in the US during the rest of this year and continued weakness in Europe, CRH shares, with a price/earnings ratio of 17.5 times earnings look expensive, compared with its peers.