Investors are continuing to undervalue building materials giant CRH in the wake of its €1 billion purchase last week, according to the company's brokers.
The group, which is Ireland's biggest company, announced last week that it was buying Apac, an Atlanta, Georgia-based operation that specialises in asphalt production and road building, for €1 billion. The acquisition is biggest in the company's history.
Market commentators believe that the move will add around 2 per cent to earnings this year, which translates to around €40 million.
In a research note published today, Davy Stockbrokers' analyst Barry Dixon says that over the past three years, CRH has been valued at a discount to other companies in its business.
Mr Dixon points out that the company's shares are priced at 11.9 times its earnings, making it one of the cheapest stocks in its sector.
"We believe that this is an anomaly," he says. "We have examined a number of reasons why this valuation discount might exist but have failed to find any with justification."
He adds that Davy is happy with its €32 price target, a prediction the firm made last May. CRH has been trading around €25.80 in recent days.
Mr Dixon points out that over the past 10 years, CRH has grown its profits by 17 per cent a year, while the average for its peers, including global businesses like Lafarge and Holcim, is 5 per cent a year.
"The relative valuation for CRH suggests that profit growth is likely to slow in the future," Mr Dixon says. "In a week when the company has completed its largest acquisition ever, we think that this is unlikely."
He also dismisses concerns about CRH's exposure to the US housing market, which has been slowing this year, pointing out that CRH earns only around 15 per cent of profits and sales from the US housing market - less than its competitors.
