Irish AAA rated Citywire building materials group. Central District Hospital (US:CRH) looks set to benefit greatly from White House efforts to support American manufacturers, according to John Bailer, one of the world’s leading portfolio managers.
Bailer, a manager of the BNY Mellon US Equity Income fund, is one of 10 elite investors backing CRH. All are ranked in the top 3% of the 10,000 global equity managers monitored by Citywire, and whose investments are also tracked to create Citywire’s groundbreaking company rankings. .
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Sources: Citywire/Morningstar, latest asset data.
Premier position
Bailer believes CRH’s decision to move the listing of its main stock exchange to New York last year puts it in a prime position to benefit from hundreds of billions of dollars of U.S. government policies.
President Biden has enshrined into law a number of initiatives aimed at boosting the U.S. economy, repatriating American jobs and industry, and reducing dependence on China for imports.
Bailer said Biden’s policies, which include the Inflation Relief Act, the Infrastructure Investment and Jobs Act and the Chips Act, are unlikely to face hostility from presidential hopeful Donald Trump.
Businesses that have chosen to invest domestically rather than overseas have already begun to reap the benefits of what Bailer calls a “manufacturing renaissance.”
This strong backdrop is reflected in brokers raising their forecasts for CRH’s 2024 earnings per share (EPS) by 25% over the past 12 months, and for 2025 earnings per share by 23%.
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Turn on the power
“You’re seeing electricity prices go up,” Bailer said, “because of all the manufacturing activity that’s coming back to the U.S., all the data centers being built, all the semiconductor factories. [fabrication plants] we want to build in the USA.
“Many companies will benefit from the revival of manufacturing, so we are concentrating on those areas where [presidential] candidates agree. This is where we see a lot of opportunity.”
CRH is a good example, with sales and earnings expected to grow steadily in the coming years.
It is one of the world’s largest suppliers of construction materials and owns the Tarmac paving business. The company first listed on both London and the Irish Stock Exchange in 1973 and has become a long-standing member of the FTSE 100 index.
However, amid shareholder frustration that CRH shares consistently trade at a discount to its U.S.-listed peers, CRH moved its primary listing to New York last year. The group, which generates three-quarters of its profits in the US, said at the time that it believed the move would lead to “increased commercial, operational and acquisition capabilities”.
Shares
CRH shares are up 59% in sterling terms since the plan to change its primary listing was announced in April 2023, and up 38% since the transition was completed.
“We met with management a week before the company listed on the New York Stock Exchange in September and bought the shares when they listed,” Beiler said.
“It combined exactly what we were looking for: valuation, business dynamics and quality fundamentals.
“We looked at US peers that we owned in the past… and those companies were trading at a much higher premium to CRH.
“We thought that once it started trading in the US, people would start to realize how much exposure it had to cumulative impacts – 75% exposure to the US.”
Revaluation
CRH shares have risen in price since the primary listing change, but they don’t look expensive from a historical perspective. At 14 times projected earnings for the next 12 months, the valuation is in the lower half of the 10-year range despite the strong outlook.
If Bailer’s prediction of an “industrial renaissance” in the United States comes to fruition, it may be justified.
| Key facts – CRH Limited Liability Company | |||
|---|---|---|---|
| Market capitalization | $54.2 billion | Price | $78.98 |
| Net debt | $6.80 billion | Net Debt/Ebitda | 0.9x |
| 52 week high/low | $88/$47.38 | Return on invested capital | 13.4% |
| Highest price per profit | 14.1 | First dividend yield | 1.8% |
| Fastest EPS Growth | 12.7% | share price for 12 months | 61% |
Source: FactSet. EPS = earnings per share. Ebitda = earnings before interest, taxes, depreciation and amortization. Forecasts for the next 12 months.