CRH SA (NYSE: CRH) is a leading manufacturer of several types of building materials and products. It is the largest building materials company in North America, with operations in 46 states. CRH successfully established itself in 28 countries spanning four continents in 3,235 locations. With operations in 18 European countries, CRH plc is also one of the largest building materials companies in Europe.
Founded in 1970, CRH plc has distinguished itself as a major supplier in various global markets. The company’s products have been used in some of the world’s most iconic construction projects. Some of these construction projects include the Mercedes-Benz Stadium in Atlanta, the Queensferry Crossing in Scotland, the Gotthard Base Tunnel in Switzerland, and the Lighthouse Tower in Australia. With an outstanding performance over the past fiscal year and the company’s transformation strategy, investors should consider building a long position in the company.
CRH plc has enjoyed a resilient and progressive financial position over the past few years. A highlight of the company’s performance in fiscal year 2021 shows revenue generation of $31 billion, representing a 12% increase in company revenue in fiscal year 2020 The company’s after-tax profit of $2.6 billion in fiscal 2021 was impressive and driven by a rebound in performance following the COVID 19 pandemic. ‘Previous exercice. The construction sector has suffered greatly from the negative economic effects of the pandemic over the past two years. There is no doubt that CRH’s revenues will continue to rebound with the softness of the global economy.
CRH’s revenue streams can be divided into three divisions, the Materials Division for America, the Materials Division for Europe, and the Building Products Division. Importantly, revenue from the America Materials division, which accounts for 40% of CRH’s global sales in 2021, reflects the company’s revenue back on track. Additionally, CRH plc is well positioned to benefit significantly from the US infrastructure program, which is worth over $1 trillion. With renewed demand for infrastructure upgrades in the United States, I expect the company to see revenue growth at the end of the current fiscal year.
Meanwhile, CRH plc started fiscal 2021 with steady progress. The company has seen a continuous demand for its products as it recorded a 3% increase in sales in the first quarter of 2021 compared to the first quarter of 2020. Nevertheless, the overall operating mechanism of the company has been affected by weather challenges that disrupted the company’s production and distribution and, by extension, its revenues. CRH plc, however, had a more productive second quarter of 2021. The company reported revenue of $14 billion in the second quarter of 2021 due to more favorable conditions. A 15% increase from Q2 2020. By the end of Q3 2021, CRH plc had spent $1.4 billion on acquisitions, symbolizing substantial opportunities for new revenue pipelines to come. The Company’s strategic acquisitions of complementary companies such as Angel Brothers Company (A paving and infrastructure solutions company in Texas) will strengthen its operational management and open up more revenue streams from project backlogs.
By the end of fiscal 2021, CRH had achieved record revenue of $31 billion, driven by the company’s integrated solutions strategy to drive sales. A closer analysis of CRH plc’s long-term debt of $10.49 billion at the end of fiscal 2022 might be a bit alarming. However, comparing the company’s long-term debt with its total assets of $44.67 billion, CRH is unlikely to incur a significant financial burden. It is safe to say that CRH plc has enough to meet its debt obligations.
Risks and mitigating factors
CRH plc is associated with certain operational risks and uncertainties. As a multinational construction company, global and national economic circumstances, monetary policy, consumer sentiment and weather conditions could adversely affect the company’s operations and revenue streams. With more than 3,000 locations in 28 countries around the world, CRH is also not immune to the negative impacts of local, national or international political unrest.
For example, CRH plc recently left Russia following the invasion of Ukraine and the economic sanctions imposed on Russia. CRH lost two markets in the middle of the conflict between the two countries. The company had to leave Russia, where it had a stake in six ready-mixed concrete plants, and also had to stop its activities in Ukraine, one of the largest cement producers. However, the company had prepared a contingency for its operations in Ukraine, which represents only 1% of the group’s annual sales.
In addition, as a supplier of raw materials, CRH faces strong competition in terms of volume and price from similar companies. However, over the years, CRH has maintained a culture of strong client relationships while catering to client preferences. In addition, CRH could also be affected by local and international regulations. Public health issues like Covid 19 could negatively affect production, while fiscal uncertainty due to its international operations is also a risk factor.
Industry Growth and Valuation
CRH plc is an international group of companies specializing in building materials. CRH has transformed itself over time using both organic growth and a series of acquisitions. CRH plc is a Fortune 500 company and one of the largest companies in the world. One of the company’s biggest acquisitions was Ash cement which it acquired in 2017. The acquisition, worth $3.5 billion, gave CRH a greater presence in the US Midwest states. In 2015, CRH purchased the newly formed company LafargeHolcim (OTCPK: LFRGY) to $7.4 billion. Although the acquisition of LarfargeHolcim nearly tripled CRH’s net debt, it made CRH plc “the world’s third largest building materials group by market value”. Furthermore, CRH owes a significant part of its development to its America Materials activity. Interestingly, the company increased its acquisitions by $1.5 billion in fiscal 2021 to create new revenue streams and future pipeline opportunities for the company.
Additionally, the company will significantly benefit from the desperate need for infrastructure upgrades in the United States. The American Society of Engineers estimates that an investment of nearly $6 trillion will be needed to modernize America’s infrastructure by 2029. In addition, CRH plc, as a leading construction company, is well positioned to benefit significantly from the US government infrastructure program worth more than $1 trillion and pipeline opportunities for the construction industry, which is expected to reach $16.6 trillion by 2025.
CRH plc has a positive future outlook with the global market now open after an extended lockdown. The company is a favorite of institutional investors. Some of the company’s major shareholders include high profile names such as Goldman Sachs Group (GS), BlackRock Inc. (BLK), Bank of America (BAC), FMR LLC and Boston Partners. CRH plc has enormous potential for the future. Its steady growth over the years shows that this is just the beginning. Double-digit growth for the company at the end of the current fiscal year is not out of reach. As the company continues to expand its business through acquisitions and partnerships, CRH plc is a buy for both short- and long-term investors.