With a 13 per cent rise in the share price since the beginning of the year, CRH has been the undoubted star of an Irish stock market which has otherwise flattered only to deceive.
That stout performance was well justified by the exceptional 1998 results reported by CRH this week. But judging by the reaction in the market, investors seem to be taking the view that CRH shares have gone far enough and a bit of profit-taking was justified. "This is a great company but now is a good time to take profits," opined the Financial Times.
Some of Don Godson's cautious words, about the US operations in particular, took the market by surprise and there is a view in some quarters that the constant double-digit earnings growth that has become CRH's hallmark in recent years may tail off somewhat. Still, with analysts now looking for e.p.s. of 90 cents a share in the current year, earnings growth of around 14 per cent in 1999 will be quite healthy.
But on forward earnings multiples of over 18, some believe CRH shares are now looking a bit pricey compared to its peer group even if one accepts the argument that CRH is a far higher quality company than most of its peers. British building materials companies are trading on forward price/earnings of 15 or less, while even French giant Lafarge is trading around 16 times its 1999 earnings.
It also remains to be seen whether CRH is able to maintain its frenetic pace of medium-sized acquisitions - which ran at the rate of two a month last year. Even the company scouring the world for acquisitions, there is a belief that competition from acquisitive groups like Hanson may push up the cost of these sort of acquisitions.
The argument here is that either it pays higher prices to maintain its pace of non-organic growth or that its growth will fall back more in line with the sector average. If that is the case, then it will become more difficult to justify the kind of premium that CRH currently warrants over most of its competitors.
That view could, of course, change if CRH is successful in its pitch for Scancem's Castle Cement business in Britain and the Finncementi operation in Finland. In the past year, CRH has continued to buy medium-sized bolt-on businesses, but the indications are that the management's appetite for bigger deals has increased, especially with a balance sheet that most acquisitive companies would envy.
Buying Ibstock at a cost of £369 million (€468 million) represented a sea change for CRH and many analysts believe that while CRH continues to scour the world for the medium-sized deal, a greater emphasis will in future be put on the bigger deal. Castle Cement/ Finncementi - at a likely combined cost of over £600 million - certainly falls into this category.
For shareholders, the advice might be not to expect the sort of growth in the share price they have enjoyed in the past year - up over 50 per cent - but to content themselves with price growth more in line with the market. CRH will probably outperform the market, but not by the same magnitude as before. Hold!
