CRH to benefit from rival sell-offs

BUILDING MATERIALS giant CRH looks poised to benefit as some of its bigger European rivals continue to sell assets to strengthen their balance sheets, according to one senior industry analyst.

In a market commentary published at the weekend, Robert Gardiner of Dublin stockbroking firm Davy says CRH could spend up to €3.5 billion on acquisitions while remaining within its banking agreements.

However, the group’s commitments to ensuring that its earnings are over six times net interest payments means that a more realistic estimate of the amount it has to spend on buying up rival businesses is closer to €1.5 billion.

Mr Gardiner says the Irish group is alone among European operators in saying it intends to continue spending money on acquiring businesses. In fact, he points out, many of its similarly sized rivals, including Holcim, Heidelberg and Lafarge, are preparing to sell off assets to boost their own balance sheets.

Mr Gardiner adds that CRH can hopefully “cherry pick” some of these businesses as they come on the market.

Lafarge sold €2.1 billion worth of businesses in Asia, Australia and the US last year. The analyst points out that it has signalled that there is another €1 billion to come this year. He says there is speculation that its South African cement business is likely to be put on the block soon.

In addition, the British authorities want Lafarge and Tarmac to sell some businesses, including cement, asphalt and readymix concrete plants, and a number of quarries, in return for allowing them to pursue a joint venture in that market.

Mexican giant Cemex, which in is in the process of completing the takeover of the old Readymix plc in the Republic, wants to sell $1 billion worth of assets by the end of 2013, and intends offloading about $500 million this year. US operator Vulcan is looking at disposing of a similar level of assets.

Holcim’s new chief executive, Bernard Fontana, has signalled it could “selectively” dispose of some of its businesses this year as it moves ahead with a cost-cutting programme, while the group will restrict spending on expansion.

“The combination of these measures makes Holcim a more likely disposer than acquirer at the moment,” Mr Gardiner says.

CRH, which had revenues of €18 million last year, spent €230 million on acquisitions on the first four months of this year. Much of the group’s growth over the last 30 years has come through acquisition.

In 2009, it raised €1.2 billion through a rights issue in what was the largest such exercise in Irish corporate history. Its aim was to use the cash to buy businesses which it believed its rivals would be forced by high debts repayments to put on the market.

However, a fall in interest rates and other factors helped ease the burden on some of the industry’s players and the opportunities that CRH foresaw did not materialise. As a result, it drew criticism for slowing the rate at which it bought other businesses.

Acquisition activity at the group has since picked up, last year it spent over €600 million on 45 purchases.