Liams Last Post : Markets rally again but CRH has a howler

Good Afternoon ,

Yesterday I was in London checking out the sentiment amongst some clients , divided and uncertain would be the best way of summing it up. The double dip fears are really eroding confidence amongst market professionals in their portfolio strategies. Up til the past few weeks most guys were quietly bullish and happy to sit through the volatility though the Sovereign volatility was testing their nerves. No one likes the financials which is surprising and there was still very much a two way view about the prospects for the UK economy. Some of the recent its of news from the likes of persimmon and Travis had permeated into a slightly happier tone amongst the guys I spoke to.

Today was all about CRH in Ireland and a sharp bout of profit taking triggered by Wall street after a stellar one day performance in Ireland and across Europe yesterday. However the markets nerves held and the rally resumed with strong upward moves in the afternoon leaving everyone a tad weary and being wrong footed again.

CRH : last week I sent a mail suggesting that CRH was worth paying attention to ahead of the trading update, the stock had been under continued pressure and had underperformed the sector peers. WIth todays news the stock has fallen from a recent high of Eur20 on the 21st of June to a bottom of the trading range level of eur16. Traditionally an EV/IC level of approximately 1.0x has been an absolute floor over a 20 year period , the 2008 low was also at an EV/IC level of 0.8 so we are in real support territory.... It is disappointing to have to cut our below consensus forecasts again, despite reducing numbers after the May AGM statement. The underlying momentum across the businesses is weaker and this was reflected in the tone of management commentary on the conference call. However, the stock is cheap trading at an EV/Capital Employed of only 0.84x and a free cash flow yield of 8.4%. FY11f EV/EBITDA is 6.7x. CRH's balance sheet is in good shape with net debt/EBITDA forecast at 1.96x for end 2010. For this reason, we retain our Buy

We have updated our forecasts for CRH following today's trading statement. For FY10, our adjusted EPS forecast has moved from 100.7c (consensus prior to today's announcement was 108.4c) to 99.4c. Our FY10 EBITDA forecast moves from €1,894.4m to €1,883.0m with PBT being reduced from €908.8m to €897.1m. These numbers reflect the benefits from an updated $/€ exchange rate and €17m higher net cost savings offset by a reduction in the organic sales growth rate in the US Materials and European Products & Distribution divisions.

For FY11, our adjusted EPS forecast moves to 131.3c from 136.1c (consensus for FY11 was 146.5c). Our EBITDA number is reduced to €2,150m from €2,193m with PBT now forecast at €1,192m versus €1,235m previously. Again, we have adjusted forecasts for updated exchange rates and included €30m of net cost savings which were outlined in today's presentation as well as the full year benefit (albeit small) from the acquisitions announced today. These benefits are more than offset by a reduction in the LFL sales growth rate.


Have a good evening.

Liam

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

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