Trump’s road to the top paved with gold for Iseq companies

As global markets baulk at the election of Donald Trump as the next US president, Ireland's largest publicly quoted company CRH sees his path to the Oval Office paved with gold.

"We believe that CRH will be one of the biggest winners of president Trump's infrastructure policies," said David Holohan, chief investment officer at Merrion Capital in Dublin, noting that the president-elect explicitly stated in his acceptance speech on Wednesday that he will invest in infrastructure, particularly highways.

“CRH has the largest exposure in the [US]building materials sector to highway spending and will be a key beneficiary of an increased focus being placed on improving bridges and highways.”

CRH generates 60 per cent of its profits in the US, of which 60 per cent is directly exposed to infrastructure, according to Davy analyst Robert Gallagher. While the Irish group has highlighted it will profit from a five-year, $305 billion US roads spending programme, known as the FAST Act, that was passed last year, Mr Trump has talked in terms of spending trillions of dollars on US highways and bridges.

“While talk is cheap and funding a major question mark, we believe that post-election talk of an infrastructure stimulus will now gain more traction,” said Mr Gallagher.

Shares in CRH closed up over 8 per cent at €32.20 on Wednesday after Mr Trump’s win was confirmed, helping lift the Iseq index up 1.9 per cent to stand out as one of the rare strong spot in Europe.

Kingspan, the maker of insulation boards and raised access flooring, also stands to benefit from increased construction spending in the non-residential sector "should there be a halo effect from the increased infrastructure spending", said Holohan.

Elsewhere, while food groups Glanbia and Kerry Group have significant operations in the US, Holohan doesn't see any direct impact on them as a result of the election, other than currency translation effect brought on by moves in the dollar against the euro.

However, paper packaging giant Smurfit Kappa is likely to be hit on two fronts. Firstly, the results of its Mexican operations will be impacted initially by foreign exchange rates, given the peso's slump on Wednesday against the US currency amid fears that Mr Trump will build a wall on the border between both countries and renegotiate a North American trade agreement.

“Over 30 per cent of Smurfit’s operating income comes from the Americas, mainly Latin American countries, and this is the region that’s driving earnings growth,” said David Donnelly, a senior investment analyst with Cantor Fitzgerald. “Protectionism is definitely going to be on the rise in the US under Trump.”

Secondly, Smurfit Kappa chief executive Tony Smurfit told The Irish Times earlier this month that while his company is keen to acquire more assets in the US, this is likely to be put on ice in the event of a Trump victory, given his protectionist outlook.

Shares in Smurfit closed down 2.75 per cent at €19.75.

Meanwhile, should international markets remain volatile for the foreseeable future, it may impact a number of initial public offerings of Irish companies that have been flagged.

The Government has indicated it may float AIB next year as it seeks to recover more of the bank's €20.8 billion bailout, while Dublin financier Paul Coulson intends to list his glass and metal containers group Ardagh in New York in the first half of 2017.

Further out, renewable energy entrepreneur Eddie O'Connor plans to IPO his Mainstream Renewable Power in New York in 2018, while phone groups Eir and Denis O'Brien's Digicel, which have both pulled flotations in recent years, have indicated they plan to try again in the medium term.

The near-term performance of the markets will determine whether the US Federal Reserve will proceed with a widely-expected interest rate increase next month, according to Eugene Kiernan, head of investment strategy at Appian Asset Management in Dublin. However, many market observers now believe a rate hike is now all but off the cards in light of market nervousness after the shock Trump win.

“But while we may see some volatility in the short term, I think the Trump is likely to surround himself with well-respected experts when he takes power,” said Donnelly. “As long as he listens to those experts and given that he’s focusing on outlining a stimulus programme that should boost growth, equity markets should actually get a boost over the next 12 months.”