CRH is set to spend €900 million investing in plants and facilities this year, the highest since before the global financial crisis, according to Davy, as mergers and acquisitions take a back seat following its biggest ever purchase in 2015.
"Investments have stepped up in the group in 2016," said Davy analysts Robert Gardiner in a note on Wednesday, adding that the spending is likely to equate to the amount by which CRH will decrease the value of assets. "This suggests that overall spend will soon reach about €1 billion, of which roughly €400 million relates to new projects in existing businesses."
Acquisitions
While investors often focus on mergers and acquisitions, which CRH has said it could spend up to €2 billion on next year without damaging its debt ratios, “we believe that the capex [capital expenditure] lever can also prove a material profit engine for the group”, the analyst said. He expects capex to rise to about €1 billion in 2017 and 2018.
Almost two-thirds of CRH's capex is devoted to its North American operations. The group's Oldcastle Materials unit announced a project last week to build an asphalt plant and distribution centre in Port San Antonio, Texas.
Also last week, CRH's Tarmac unit in the UK, which it acquired last year as part of its €6.4 billion purchase of assets from European rivals Lafarge and Holcim as a result of their own merger, said it would boost manufacturing of lightweight aerated building blocks by upgrading an reopening a second factory in Essex.
Opportunities
Earlier this month Tarmac unveiled a new, state-of-the-art cement packing facility at its Tunstead cement site in Derbyshire.
“While only a small sample of the overall capex plan, these projects highlight the efforts under way at CRH to grow its existing business to take advantage of market opportunities,” Mr Gardiner said.
CRH, led by chief executive Albert Manifold, is currently targeting record earnings before interest, tax, depreciation and amortisation in excess of €3 billion this year, having delivered better-than-expected profits for the first half of the year. It is scheduled to issue a trading update on November 17th.
Shares in the building materials giant reached a nine-year high at €30.90 in early September after the group managed to rejoin Europe’s leading blue-chip stocks index, the Euro Stoxx 50, after a two-year absence. They are currently changing hands at €30.22, giving CRH a market value of €25.1 billion.
