CRH: $1.1 Billion European Divestment Reinforces CRH’s Exposure to Faster-Growing End Markets

Our Exemplary Morningstar Capital Allocation rating for narrow-moat CRH has once again been supported by two recently announced transactions, which will reinforce the group’s exposure to faster-growing end markets without significantly hitting its balance sheet. Shortly after it announced it would be acquiring several cement and concrete assets in the fast-growing Texas region from Martin Marietta, CRH subsequently announced a $1.1 billion divestment of its European lime operations. We view the partial funding of a fairly priced acquisition with divestment proceeds from a business, also at a reasonable price, favorably when the outlook is less attractive. Both transactions reflect a continuation of the group’s strategy of growing its end-market exposure in the U.S., which already stands at 75% of group EBITDA prior to both transactions. Given the low-value/weight ratio of building materials, demand is at the mercy of local economies, the U.S. being one of the fastest-growing regions due to the Infrastructure Investment and Jobs Act, which will accelerate commercial and infrastructure projects. We maintain our recently upgraded $55 (GBX 4,400) fair value estimate and view shares as fairly valued.