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Is CRH’s share price undervalued ahead of half-year results?

CRH’s share price has picked up momentum over the summer. Upcoming half-year results could add to this momentum, especially after the supplier of building materials delivered a strong set of full year numbers in 2021.

Whilst the focus will be on earnings, there could also be a case to be made that CRH’s [CRH.L] stock is undervalued. Should investors pick up shares pre-earnings to capitalise on this discounted valuation?

 

What’s happening with the share price?

CRH’s share price has surged nearly 15% since the beginning of July, reflecting the bounce back wider equity markets have experienced over the summer. Still, CRH’s stock remains down over 16% this year, closing Friday 21 August at 3,272p. Depending on how you view the business’s chances, this could represent a discount on the share price.

2021 was a strong year for CRH as demand for building materials returned. In the company’s 2021 full year results sales came in at $31bn, up 12% year-over-year, while EBITDA was $5.35bn, up 16% year-over-year.  Investors will be hoping that this trend continued in the first six months of 2022.

 

What to look out for in CRH’s half-year results?

CRH said that it had had a positive start to the year in an April trading update. Group sales, EBITDA and margins were all ahead up in the first quarter compared with the same period in 2021. CRH pointed to improved activity in the market and the execution of its integrated solutions strategy.

In the Americas sales were up 13% compared with the same period in 2021, while sales in Europe were up 11%. Sales of building products were up a substantial 22%, among the reasons for the bump were strong residential demand in North America.

Off the back of a strong first quarter, CRH continued its share buyback scheme with a commitment to have purchased a further $300m shares by the end of June, bringing the total to $600m for the first six months of the year.

CRH said that it expected group sales and EBITDA for the first half of the year to be ahead of the same period last year. For comparison, EBITDA for H1 2021 came in at $2bn.

The building material supplier has identified several value drivers. The first was population growth in North America, which CRH said would increase by 30m people every decade. The second was Europe which offered a balance between stability in western Europe and growth in eastern Europe. CRH also said that M&A activity could also drive growth — something to look out for when the company reports half-year numbers.

During the results, also listen out for any concerns over macroeconomic events or inflationary concerns that may affect CRH’s business in the second half of the year.

 

Is CRH’s share price undervalued?

CRH’s share price could be undervalued. The stock has a forward price to earnings (P/E) ratio of 11 6, which is below the average on the FTSE 100. It also has a price to earnings growth (PEG) ratio of 0.96 over the next five years, according to data from Yahoo Finance. Unlike P/E, PEG also takes into account future earnings potential. Anything under 1 could be considered undervalued; a score over 1 would be considered overvalued.

Consensus is that revenues will come in at $26.58bn for the current year, up 7.2% year-over-year. In 2023 revenue is pegged at $27.29bn, up 2.7% year-over-year.

Of the nine analysts polled on the Financial Times, CRH has a median price target of 4,124.61p, suggesting 26.1% upside on Friday’s close. Four of the analysts have a ‘buy’ rating, while five have an ‘outperform’ rating.

Disclaimer Past performance is not a reliable indicator of future results.

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