CRH flags further share buy-backs as activist investor hovers

CRH plans to follow up its first share buy-back programme in a decade with further repurchases, after the building materials business generated record levels of cash last year.

“Buy-backs are now an ongoing part of how we think about capital allocation,” chief financial officer Senan Murphy told analysts on a call. “We’ll be back to you to update you in terms of further phases.”

The group moved last April against the backdrop of a weak share price to initiate its first share buy-back programme since 2008, committing to repurchasing €1 billon of its own stock within a year, in the belief that it was trading at a discount to its “intrinsic value”. Some €900 million of shares have since been purchased.

CRH reported on Thursday that its earnings before interest, tax, depreciation and amortisation (ebitda) grew 7 per cent last year to €3.37 billion, marginally beating guidance from November that it was on course to achieve €3.35 billion.

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The company generated €2.4 billion of free cash during 2018, double the level it was producing five years earlier, before chief executive Albert Manifold took over.

The solid set of results come weeks after Europe's largest activist investor, Cevian Capital, disclosed that it had built up a stake of less than 3 per cent in CRH, leading to a jump in the stock as investors speculated that the Stockholm-based group would press management to pursue strategies to boost shareholder value.

Different to rivals

Mr Manifold told reporters he expected Cevian to be “like any other shareholder” that would share their views with CRH and “sometimes push you hard”.

Some analysts highlighted at the time Cevian disclosed its investment how CRH’s ebitda margin, which was little changed last year at 12.6 per cent, was lower than rates of 17-25 per cent for peers HeidelbergCement, LafargeHolcim and Saint-Gobain.

However, Mr Manifold said that CRH’s business is different to global rivals’ in that its broader, vertically integrated business is not as “capital intensive”. He added that margins in individual segments of CRH compare well with similar businesses of peers.

“I think margins are very interesting, provided you’re comparing similar businesses, providing you’re comparing apples with apples,” Mr Manifold said.

“Year after year we produce higher returns and higher cash returns than they do,” he said. “Until our shareholders tell us something else, we are going to focus on returns and cash. That’s how CRH wins, hands down, year after year.”

Acquisitions

CRH has proposed paying a 72c per share dividend on last year’s results, a 6 per cent increase on the year.

Since Mr Manifold took charge in 2014, CRH has spent more than €13 billion on acquisitions, including the transformational €6.5 billion purchase of assets sold by LafargeHolcim in 2015. CRH has also sold more than €5 billion of unwanted and underperforming assets over the same period.

CRH has been weighing options for its low-yielding European distribution business for almost a year. Mr Manifold said on Thursday that it would make a final decision in the coming months.

Shares in CRH rose as much as 2.4 per cent in Dublin on Thursday to €28.20, their highest level since last October.