[US stocks] CRH: The largest aggregate and asphalt manufacturer in the United States | Thorough explanation of dividend and increased dividend stocks in US stocks | Investment information from Manekuri Manex Securities and useful media about money

29 countries, over 78,500 employees in a global company

CRH is one of the world’s leading building materials companies, supplying a wide range of building products used in construction projects to customers in the construction industry, including aggregates, cement, ready-mixed concrete, asphalt and paving. As a global company employing over 78,500 people in more than 3,390 locations across 29 countries, CRH is the number one producer of aggregates, asphalt and concrete products in the United States. Its products are widely used for a diverse range of construction purposes, from road and bridge infrastructure projects to the construction and maintenance of manufacturing facilities, data centers, logistics facilities, as well as new construction, repair, and renovation of single and multi-family housing.

In the fiscal year 2023, sales reached a record high of $35 billion, driven by expanded infrastructure and equipment investment demand. In recent years, data center construction has been boosted by the growth of infrastructure investment and the AI market.

Long term tailwind: infrastructure investment, reshoring of manufacturing, recovery in housing construction

The company’s final market is divided into three areas: infrastructure, residential, and non-residential. About 35% of the sales in the fiscal year 2023 were for infrastructure (highways, streets, roads, bridges, public infrastructure), 30% for non-residential construction (including construction and maintenance of manufacturing, data centers, and distribution facilities), and 35% for residential construction. 55% of the sales were for new construction project party, and 45% for renovation and reconstruction project party.

Since the IIJA (Infrastructure Investment and Employment Act) was passed in November 2021, the US construction market has been booming, with total public construction spending reported to have increased by more than 33% compared to 2020, according to the US Census Bureau, reaching its highest level since the 1960s.

Out of the infrastructure investment budget of 1.2 trillion dollars, 550 billion dollars is for the new budget for the next 5 years, with approximately 110 billion dollars allocated to roads and bridges, 65 billion dollars to the power grid, 55 billion dollars to water-related projects, 25 billion dollars to airports, 17 billion dollars to ports, and considerable funds are allocated to the company’s final market. Government infrastructure investments are largely long-term project parties, and the company will receive a long-term tailwind. It is expected that a large amount of funds will flow in until around 2028 due to the new budget for the next 5 years.

On the other hand, there are concerns about the impact of the upcoming Trump administration, which advocates for the abolition of some policies. However, in the market, it does not seem to be a particularly worrisome factor, as it would not be desirable to incur the displeasure of local senators who hope to promote employment. Instead, there are expectations for the revitalization of new manufacturing facilities through a focus on America first and domestic manufacturing. The construction of data centers is also expected to remain active, and the overall outlook is bright in the long term.

Successful expansion and functional enhancement through strategic acquisition~ vertically integrated business model that has spread regionally.

In response to such demand, a vertically integrated business model that has spread regionally becomes a competitive advantage in acquiring orders. The company has been expanding its scale through strategic acquisition and at the same time has been building a business structure that can provide construction materials consistently from upstream to downstream. The acquisition amounts in recent years are $3.3 billion in 2022, $700 million in 2023, and in the current fiscal year covering the first 9 months of 2024, a total of $3.9 billion has been completed through 28 acquisitions.

The reason why the acquisition amount for this term is large is due to a large-scale case of 2.1 billion dollars in November 2023. The assets portfolio of cement and ready-mixed concrete of Martin Marietta Materials [MLM] in Texas, USA were acquired, making it the most notable case recently. Texas has the highest population and GDP growth rate in the United States. In addition to being active in new construction, it can be seen that this acquisition was an important case to enhance its presence in the United States because it is also the largest recipient of federal highway funding in the United States.

In addition, in April 2024, we acquired BoDean and Northgate Ready Mix in California. This important deal marks the entry of the material business into the Northern California market, adding two aggregate quarries, two ready mix concrete plants, one asphalt plant, and one recycling plant.

By strategically stacking acquisitions, we have expanded our business scale. At the same time, the cost reduction effect through integration and the increase in bases to improve transportation efficiency are also attracting attention. Both aggregates and cement are heavy and require specialized expertise, so transportation costs inevitably become high. According to Longbow Research, the profitable delivery distance is 80 km for aggregates and 240-400 km for cement. To achieve this, it is essential to establish multiple bases to reduce the transportation distance in order to control transportation costs. The company has 3,390 sales bases (1,870 in the main market of the United States and 1,441 in Europe), and this network helps to control transportation costs.

The outlook is for continued growth through acquisition in the future.

Strategic acquisition has functioned as an important growth strategy for the company. In fact, two-thirds of the company’s growth over the past 10 years has been driven by acquisitions. Further growth through acquisitions is expected in the future. This is because the US construction materials market is highly fragmented, consisting mostly of small and medium-sized enterprises, leaving ample room for consolidation. Against this backdrop, the company is targeting acquisitions in the range of $500 million to $2 billion to gain market share.

The business consists of two divisions, the “America Division” and the “Europe Division”, each of which operates a “Materials Business” providing materials such as aggregates and cement, and a “Building Materials Business” providing products such as piping and precast for water supply and drainage, rainwater, enclosure, and architectural accessories.

The US division accounts for 64% of total sales and 73% of adjusted EBITDA, with the materials business accounting for 44% of sales and 50% of adjusted EBITDA, making it the main business. In terms of sales (profits) composition for the fiscal year 2023, the US materials business accounted for 44% (50%), the US building materials business accounted for 20% (23%), the European materials business accounted for 28% (22%), and the European building materials business accounted for 8% (5%). The materials business accounts for 70% of both sales and profits.

The stock price is relatively cheap compared to other companies in the same industry, attention is paid to the possibility of S&P 500 inclusion.

Performance is strong. The outlook is for continued demand expansion and price rises in the background of infrastructure investment and reindustrialization, and this fiscal year is expected to achieve a 12% increase in profits. The business environment is very promising, with active infrastructure projects by governments in both North America and Europe, and the company is in a position to greatly benefit from this.

In particular, in the United States, it is expected that funds will flow into infrastructure project party until 2028 due to the Infrastructure Investment and Employment Act. In addition to this, there is expected to be a demand for the construction of data centers and power distribution networks due to the growth of the AI market, as well as a demand for the construction of manufacturing facilities due to the reshoring of manufacturing industry. Regarding the housing market, it is expected that new construction will be sluggish in a high interest rate environment, but there is a steady demand for repairs and renovations, and overall, there is a tailwind.

Acquisition continues to be a growth strategy, supported by strong cash flow and a solid financial foundation. Free cash flow has remained positive for 20 years due to sustained growth. The financial situation also maintains a high level of financial stability for a manufacturing industry with a large amount of tangible fixed assets, with a current ratio of 1.4 times, a net interest-bearing debt ratio (net DE) of 0.5 times, and an equity ratio of 42.7%.

We are also actively returning profits to shareholders along with growth investments. We have carried out a share buyback worth $1.2 billion in the first nine months of 2024. Share buybacks are regularly conducted, and the number of shares has decreased by 13% over the past five years.

The stock price has shown a high performance of 47% rise since the beginning of 2024. However, the PER is lower than competitors such as Martin Marietta Materials [MLM] and Vulcan Materials [VMC], suggesting that the strong performance and outlook may not be fully appreciated. It can also be said that the recent listing on the New York Stock Exchange may have low awareness. In September 2023, the company migrated its main listing from the London Stock Exchange (LSE) to the New York Stock Exchange (NYSE). This is expected to increase awareness and attract capital inflows. There is also a possibility of being included in the S&P500, which would attract funds from ETFs and investment trusts that track the S&P500 index, leading to a strong rise in the stock price.

【Figure 1】CRH Annual Dividend Trends Source: Created by the author from Bloomberg

【Table 2】Comparison of Stock Price Trends between CRH and S&P 500 Source: Created by the author from Bloomberg The stock price of CRH [CRH] is set at 1 on July 31, 1989.