Morningstar | Rising Input Costs Through First Nine Months Weigh on CRH’s Profits; Reducing FVE
Through the first nine months of 2018, CRH saw EBITDA rise 8% over the prior year period to EUR 2.5 billion, although three fourths of this growth stemmed from acquisitions. On a like-for-like basis, EBITDA rose just 2%, primarily due to challenging weather conditions in the U.S. and a spike in input costs such as bitumen and energy.The Americas, normally CRH’s profit growth driver, struggled through the first nine months of 2018 as increasing input costs and significant rainfall led to EBITDA growth of just 3%. However, underlying demand appears strong across residential, nonresidential and infrastructure end markets, so better growth should return to the region going forward.
Europe saw some improvement in prices, but higher input costs weighed on performance, leading to just 2% like-for-like EBITDA growth through the first nine months. We continue to expect EBITDA growth in the region will be middling given weaker fundamentals than the Americas.
Asia continues to be a problem area for CRH. Although the company saw better volumes and pricing amid strong demand in key country the Philippines, higher fuel and power costs across the region led to a like-for-like 44% decline in EBITDA through the first nine months.
Due to higher than expected cost increases, the company’s 2018 EBITDA guidance of roughly EUR 3.35 billion was below our prior forecasts. We’ve lowered our forecast accordingly. In addition, the U.S. dollar has strengthened relative to the euro since our last update. Therefore, we’re cutting our fair value estimate to USD 35.50 per share from USD 37. We’re also cutting our British pound-denominated fair value estimate to GBX 2,800 per share from GBX 2,900. CRH’s no-moat rating is unchanged.
Shares have retreated nearly 20% since the second quarter earnings release, as part of broader market concerns over the global economy. After taking into account CRH’s high uncertainty rating, we think the current share price offers an attractive entry point.
CRH is a diversified international building materials company. Co. is engaged in the manufacture and distribution of a range of building materials products from the fundamentals of heavy materials and elements to construct the frame, through value-added products that complete the building envelope, to distribution channels which service construction fit-out and renewal. Co. operates seven operating segments: Europe Heavyside, Europe Lightside, Europe Distribution, Americas Materials, Americas Products, Americas Distribution and Asia.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
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