BUILDING MATERIALS specialist CRH offers investors the best prospects of the three Dublin-listed companies in its sector, according to a review by stockbrokers Bloxham.
The firm’s analyst Paraic Quinn published a review of construction-related stocks at CRH, Grafton and Kingspan yesterday, which assesses all three’s prospects of recovery and potential to deliver value to investors.
The review points out that while all three are Irish companies, their international businesses are more important to them than their home market.
CRH generated less than €6 in every €100 of its operating profits in Ireland, while the balance was split 50/50 between America and Europe.
Ireland was responsible for 10 per cent of Kingspan’s sales last year and 37 per cent of Grafton’s.
Mr Quinn says that CRH is Bloxham’s “clear top pick” on the basis of both value and short-term outlook.
The group’s exposure to the US means that it will be a primary beneficiary of that country’s economic stimulus programme, which relies heavily on road building and other public construction projects.
“We view the structural stories behind Grafton and Kingspan as remaining attractive, but on valuation grounds consider both stocks expensive at current levels.”
Mr Quinn points out that CRH has been trading at around nine times 2009 earnings, which is close to the top of its historic range.
However, Mr Quinn argues that this does not reflect the fact that the group has the cash to buy rivals that will boost its earnings power.
CRH raised fresh cash from shareholders earlier this year. It intends exploiting the fact that many companies in its business are likely to be sold at attractive prices as the construction slump continues and rivals struggle with their debts.
Shareholders have been benefiting from a 3.5 yield on CRH’s dividends, which the stockbroker believes is secure.
Grafton has been delivering 1.2 per cent while Kingspan has suspended dividends, and Mr Quinn says the company is not expected to begin paying them again until 2011.
“Current share prices for Grafton factor in a strong recovery in earnings, which we think is overly optimistic given the economic backdrop.”
He argues that while Grafton’s strong asset backing helps to supports its price, it is vulnerable to any indication of a delay in a recovery in Britain, which is responsible for over 60 per cent of its sales.
Kingspan’s current value also appears stretched, he says.
However, Mr Quinn does point out that the group, which specialises in insulation and energy-saving fittings for buildings, remains well positioned to cash in on new construction regulations in the US and Europe, although its recovery will lag behind the other two.
