The Investment Column: Still scope for CRH to build on growth potential

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CRH was formed in 1970 through the merger of two Irish companies, Cement and Roadstone. The newly formed group was the sole producer of cement in Ireland and the main producer of concrete products and asphalt. Expanding steadily by acquisition, it has grown from sales of €26m (£18m) in 1970 to €12.8bn last year.

After seeing profits break through the €1bn barrier last year, CRH issued yet another convincing trading update yesterday. It expects to see percentage growth "in the high teens" in first-half pre-tax profits and further progress in the more important second half. Analysts noted approvingly that despite its focus on buying its way to growth, half its performance is still down to organic improvements.

But CRH's various divisions showed a mixed performance. While the US is firing on all cylinders, the European operations remain sluggish. Through May and June its US operations performed strongly, but there are few signs of a pick-up in demand in the larger eurozone economies.

The company may also be at risk from the recent spike in oil prices, which will drive up costs. Other danger factors include a slowing in the US economy and a marked increase in asbestos claims, which continue to grow in North America.

Another negative is lower spending on acquisitions than in recent years - CRH spent a mere €231m in the first half, 35 per cent in Europe and 65 per cent in the Americas. That compares with an average annual spend of €1.2bn in years gone by. Many purchases have been small family outfits, which steadily expand CRH's purchasing and distribution network. Yet there is little doubt that CRH will keep pushing ahead as an acquisition machine. Its wide spread of businesses - from brick making to ventilation products - ensures it is relatively well protected from a single market's ups and downs.

Trading at about seven times 2005 earnings, the stock compares favourably with some of its rivals, and remains a buy.

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