Ireland-based CRH plc, the international building materials group, reports that it has agreed a significant divestment in the USA and an equally significant purchase in Germany. Both need regulatory approval.
CRH is selling its Americas Distribution business to Beacon Roofing Supply for of $2.63bn in cash. Americas Distribution has been part of the CRH Group for more than 20 years. It has traditionally executed a growth strategy.
This is based on focused acquisitions, selective greenfields and investments in private label products. The business has delivered significant improvement in performance and returns in recent years, says CRH.
But the absence of value accretive acquisition opportunities and a lack of visibility as regards a route to market leadership, has resulted in CRH’s decision to divest this business now at what the company describes as an attractive valuation.
In 2016, Americas Distribution reported EBITDA (earnings before interest, tax, depreciation and amortisation) of €150m on sales of €2.3bn; profit before tax for the year amounted to €121m, and gross assets at the half-year stage amounted to €1.2bn.
The proceeds will be reallocated to value creating acquisitions and investments. In this context, CRH says that its Europe Heavyside business has agreed to acquire Fels, a German lime and aggregates business, for €0.6bn (enterprise value).
Number two in Europe
CRH says the integration of Fels will give it a number two position in the attractive European lime market while providing a platform for further growth. Fels reported EBITDA of €70m on sales of €260m in 2016.
Dublin-based stockbroker Davy says in a note that the sale price for the Americas Distribution business represents 16x EBITDA and that the proceeds are being investing in a high-return European business at 7x.
Albert Manifold, CRH chief executive, said the transactions demonstrate the execution of CRH’s strategy of adding value through the efficient allocation and reallocation of capital. He highlights the deployment of capital into an attractive growth market in Europe.
Davy says the development update amply demonstrates CRH’s ongoing commitment to profitable growth and structural improvement in returns. “The transaction leaves the company with significant firepower to pursue further returns-enhancing activities.
“This, combined with a reiteration of its positive outlook for full year profits, highlights compelling value in the current share price,” it adds. The CRH share price rose by 61 pence in London (up 2.27%) and 83c in Dublin (up 2.84%).
First half results
CRH also announced first half 2016 results this morning. Trading highlights are as follows
- Sales of €13.0bn, 2% ahead of 2016
- Like-for-like sales ahead 1%; +3% in Europe, +1% in the Americas and down 8% in Asia
- EBITDA of €1.175bn, 5% ahead of 2016
- Like-for-like EBITDA ahead 2%; +2% in Europe, +6% in the Americas and down 39% in Asia
- EBITDA margin 9.0% (H1 2016: 8.8%)
- Earnings per share of 43.5c per share, 29% ahead of 2016
Queensferry Bridge project in Scotland, courtesy of CRH
“We have had a satisfactory start to 2017 with stabilising trends in key European markets and EBITDA growth in the Americas,” said the CEO, adding that the dividend will rise by 2.1% to 19.2c per share.
For the second half of the year, despite currency headwinds and continuing challenging conditions in the Philippines, he says the company expects a continuation of the first half momentum in Europe and EBITDA growth in the Americas.
Davy notes that the company is uniquely positioned in the sector to pursue returns-enhancing deals. “On a pro-forma basis and assuming no further acquisitions, we estimate that net debt/EBITDA by year-end could decline to sub-1x,” it says.
“Management previously indicated that it is comfortable with a leverage ratio of 2 or below. We estimate that CRH could spend over €4bn (assuming a 10x multiple) and still maintain a leverage ratio below this target,” Davy concludes.