2023-07-11 07:18:43 ET
Summary
- CRH's conversion to a US primary listing is expected to be done in late-September, and this has multiple positives for the stock.
- The company is currently executing on a one-year $3 billion share buyback plan, which I expect to be value-accretive.
- I stick with a Buy rating for CRH stock, as I have a favorable opinion of its share repurchase program and US primary listing transition.
Elevator Pitch
I continue to rate CRH plc ( CRH ) [CRH:LN] shares as a Buy. With my prior August 29, 2022 write-up for CRH, I reviewed the company's 1H 2022 financial results and its capital allocation plans.
My attention turns to CRH's US primary listing conversion and its share repurchase program in this latest article. CRH's primary listing in the US will boost its M&A growth strategy and strengthen its competitive position in North America; the size of its share buyback plan is substantial at $3 billion and its share repurchases are expected to enhance shareholder value considering CRH's current valuations. As such, I leave my Buy rating for CRH unchanged.
US Primary Listing
Last month, CRH published a press release disclosing that it has secured shareholders' approval for a "transition to a US primary listing on the New York Stock Exchange", which is estimated to take place on September 25 this year. Previously, CRH had a primary listing in the UK with secondary listings in the US and Dublin. Going forward, CRH's shares will no longer be listed in Dublin, while the company will have a primary listing in the US and a standard listing in the UK.
In my view, CRH's decision to change its primary listing venue from the London Stock Exchange to the New York Stock Exchange is a wise move for three key reasons.
Firstly, there is the potential for a positive re-rating of CRH's valuations, considering that the current misalignment between the company's earnings mix and its shareholder base composition could be corrected in the future. In its Q1 2023 trading update , CRH revealed that it generates approximately three-quarters of its EBITDA from the North America market. In contrast, only 32% of CRH's shareholders are based in North America as of end-2022 as indicated in the company's 20-F filing . A meaningful number of US fund managers might have been prevented from investing in CRH's US-listed shares in the past, due to the company's secondary listing status in the US. Following the conversion to a US primary listing in September, CRH is well-positioned to attract a greater number of US institutional investors to become its shareholders.
Secondly, CRH's competitive position in the North American market is expected to improve after the completion of its US primary listing. According to a June 8, 2023 Reuters news article , CRH's CEO was quoted as highlighting that the US primary listing transition will "help CRH benefit from large U.S. government spending programs" and "leaves us at last on a level playing field with our competitors." This implies that CRH is no longer at a major disadvantage as compared to its US rivals when bidding for infrastructure projects funded by the US government, thanks to its US primary listing status.
Thirdly, CRH is likely be in a better position to execute on the company's inorganic growth or M&A strategy in terms of financing options, once it achieves a primary listing in the US. In its shareholder circular relating to the US primary listing, CRH noted that the primary listing gives it "further flexibility to offer US listed equity as a form of tax-efficient acquisition consideration for certain sellers." Notably, CRH stressed in its Q1 2023 trading update that it had a "strong pipeline of (M&A) opportunities."
Share Repurchases
CRH issued a 6-K filing on June 30, 2023 providing updates on the company's share repurchase plan. Earlier, CRH noted in its Q1 2023 trading update that it has a $3 billion share buyback plan in effect for the period between March 2023 and March 2024.
As per the company's 6-K filing dated June 30, CRH has already successfully completed the first stage of its share repurchase program, as it has executed on $700 million of share buybacks by the end of June. At the same time, CRH revealed that the second stage of the company's share buyback plan will involve repurchasing another $1 billion worth of its shares between June 30 and September 22 this year.
The company's one-year $3 billion share repurchase plan is significant in many ways.
CRH had only spent $4.1 billion (yearly average of $0.82 billion) on share buybacks in the past five years between 2018 and 2022, so the new $3 billion buyback program represents a meaningful increase in share repurchases. Also, $3 billion is roughly equivalent to a significant 7% of CRH's current market capitalization.
Moreover, CRH's current valuations are still below historical averages, which suggests that share repurchases are most probably going to be value-accretive at the stock's price levels now. As per S&P Capital IQ's valuation data, CRH is currently trading at consensus forward next twelve months' EV/EBITDA and normalized P/E multiples of 7.7 times and 14.6 times, respectively. As a comparison, CRH's 10-year average forward EV/EBITDA and normalized P/E metrics were higher at 8.8 times and 16.1 times, respectively.
Concluding Thoughts
I retain a Buy rating for CRH. CRH's $3 billion share repurchase plan and conversion to a US primary listing are expected to have a positive impact on the company, which validates my Buy rating for the stock.
For further details see:
CRH: Spotlight On Primary Listing And Share Repurchases