Fitch, one of the world's leading credit ratings agencies, expects building materials giant CRH to ease back on its recent focus on lowering its debt levels as it returns its focus to growth.
CRH, which spent a gross €7.8 billion on deals in 2015 including the purchase of assets from European peers Lafarge and Holcim ahead of their merger, has managed to lower its debt ratio since then at a faster-than-expected than Fitch had expected.
The company’s net debt fell from 3 times earnings before interest, tax, depreciation and amortisation (ebitda) in 2015 to 1.7 times last year as its earnings were boosted by the deals.
“The group’s rate of deleveraging has exceeded Fitch’s expectations since its large acquisitions in 2015,” the UK-based ratings firm said, reiterating its ‘BBB’ rating on CRH’s senior unsecured debt, which is eight levels below its top-notch AAA stance. “Fitch expects limited further deleveraging, reflecting management’s renewed focus on growth.”
The Dublin-based group signalled in February that it was back on the mergers and acquisitions (M&A) trail and had the capacity to spend between €2 billion and €3 billion on transactions by the middle of next year. Agreed deals announced so far this year amount to about €500 million, though this was largely offset by proceeds from the sale of unwanted assets.
The group revealed last month that senior executive Maeve Carton, who had been in charge of integrating the assets acquired in 2015, plans to retire at the end of August.
“CRH has a good track record in executing and integrating M&A,” said Fitch. “It historically replaced businesses that it sold at a multiple of 10 times ebitda with earnings and margin-accretive acquisitions at 8x ebitda.”
Fitch also expects CRH to step up investment spending in the coming years.
Meanwhile, analysts at investment firm Cantor Fitzgerald in Dublin noted on Tuesday that CRH's stock has fallen by about 13 per cent since mid-May, partly as a result of bad weather impacting business volumes in North America, where the company generates 60 per cent of its earnings.
The drop has taken some of the steam out of a surge enjoyed by the stock following Donald Trump’s election as US president last November, amid hopes it would be a key beneficiary from the Republican’s infrastructure spending plans.
"The lack of discernible M&A activity has not helped," said Will Heffernan, an analyst with Cantor.
He said that he expects CRH, which reports interim results on August 24th, to report that European trading continues to pick up and that the US should improve in the second half.
