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CRH delivers record growth thanks to currency swings and acquisitions

“There are some cracks in the façade though. The numbers are flattered by positive currency movements and are also boosted by acquisitions,” said one analyst

CRH PLC - construction worker

Irish building materials group CRH PLC (LON:CRH) enjoyed record profits in the first half of the year, boosted by strong contributions from acquisitions and currency swings.

Group sales of €13.2bn in the six months to 30 June were up 11% year on year and 3% ahead on a like-for-like basis.

LFL sales in the Americas Materials arm were up 2% and in Europe Materials were 6% higher, which was said to reflect a “more normalised weather pattern” but with UK construction activity continuing to decline amidst Brexit-related uncertainty. Building Products LFLs were up 3%, reflecting positive demand and pricing.

Boosted by margin-enhancing acquisitions, profit before tax from continuing operations leapt 42% to €707mln with earnings per share up 51% to 67.8 cents. 

The interim dividend was nudged up 2% to 20 euro cents per share, while a further €350mln of the share buyback programme to be completed by year end.

“On the back of our strategic initiatives, CRH has delivered significant profit growth in the first half of 2019, with a good performance in our heritage business and strong contributions from recent acquisitions,” said chief executive Albert Manifold. 

For the full year he said continued strong cash generation would lead to debt ratios below normalised levels,  with further operational progress anticipated in the second half of the year.

Against an expected backdrop of continued positive momentum in North American construction markets and with good contributions from acquisitions, he said second-half EBITDA growth is expected from all divisions.

Numbers flattered?

Russ Mould, investment director at AJ Bell, wondered how, despite all the talk of a global slowdown, CRH has chalked up a record first half result.

“How has it achieved this feat when you would expect the construction sector to be fairly depressed? Indeed, there are clear signs of slowing growth among the company’s peer group in the US as well as pressure on pricing.”

He said the group's aim to be diversified across different products, geographies and end-uses helps mitigate fluctuating demand at different points of the business cycle, while management are also committed to continually looking at how the different bits of the group can be renovated.

“And, for now, this approach appears to be paying off. The company’s strong cash generation is helping to underpin an extension of its share buyback programme,” Mould said. 

“There are some cracks in the façade though. The numbers are flattered by positive currency movements and are also boosted by acquisitions.

“Selectively buying up businesses is unashamedly part of the strategy, but organic growth is probably a better test of the firm’s foundations. Take acquisitions out of the equation and growth look solid rather than spectacular.”

CHR shares were down 1% to 2,646p on Thursday morning.

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