The Investment Column: Irish luck holds for CRH abroad

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The Independent Online
THE IRISH are famous for having a good time wherever they find themselves around the world. This trait has been typified by CRH, the country's largest building group, over the last few years. Based in Dublin, its push into international markets has been a great success, so almost three-quarters of its trading profits now come from abroad.

The big test last year was North America. Even though the United States economy enjoyed its sixth year of expansion in 1997, the construction industry has seen relatively modest growth of around 3 per cent per annum. And CRH wanted a strong performance there to show it could absorb its biggest acquisition yet, the $329m (pounds 238m) purchase in 1996 of Tilcon from BTR, plus the subsequent takeover of Allied Building Products

The luck of the Irish has not deserted the group. Profits across the Atlantic jumped 40 per cent to IRpounds 135.0m, in 1997. That storming performance helped group pre-tax profits to roar ahead 26 per cent to IRpounds 253m on turnover up 27 per cent at IRpounds 3.2bn.

Despite acquiring a slew of businesses from Tilcon to Caneras Cerro Negro in Argentina in the last two years, CRH still has an appetite for more. Gearing is just 35 per cent and interest cover a very comfortable 8.7 times. And it has five teams at work in North America alone looking for potential acquisitions. CRH is a significant generator of cash so the balance sheet is well positioned for expansion.

Chief executive Don Godson, who now has 20,000 employees, is by nature cautious. "We look to positive growth in all our regions in 1998, although probably at a slightly slower pace than a hectic 1997," he said yesterday. That said, "hectic" sums up a company that has been buying at companies at a furious rate and at the same time selling some smaller assets it deems peripheral. CRH is not likely to rest on its laurels.

For a start, the European operations are currently being reorganised along the line of the product-based structure that has worked so well in the US. That should help France and Germany where the building sector has been struggling.

The shares slipped IR15p to IR954.75p yesterday. Analysts believe CRH will come up with pre-tax profits of IRpounds 279m this year, which would put it on a future multiple of 17.3. That does not look cheap, but as long as the US economy does not suddenly take a nose-dive the rating seems justified for this well-managed group.