Barclays chooses CRH as new 'top-pick' in European construction sector

CRH's euro-denominated shares have replaced those of Eiffage as Barclays's 'top pick' within the European Construction, Building, Materials and Infrastructure sector.

In a research note sent to clients, the analysts argued that the elimination of the stock's valuation premium relative to its peers was undeserved, given its superior earnings trajectory.

Barclays also highlighted the company's "healthy" balance sheet, which provided it with the financial muscle needed to undertake "sizeable" acquisitions.

To that one should add the firm's "convincing" track record on M&A, they said, having managed to pull off purchases at substantial discounts even before potential synergies are taken into account.

"We estimate CRH still has €4-5bn firepower, which could result in further 5-11% earnings accretion," they said.

In terms of the outlook for CRH's trading, the broker said that while the impact of adverse weather on its operations in the US during the third quarter of 2017 had led it to cut its estimate for the outfit's earnings per share in 2017, it now saw improved medium-term prospects in Europe and the US.

The analysts also expected acquisitions to be accretive to the company's earnings.

More specifically, Barclays lowered its estimate for the company's EPS in 2017 by 3% but raised its estimates for 2018 and 2019 by 4%.

"Applying US peers multiples to its Americas businesses would leave European divisions implicitly trading on 3.6x 2018E EBITDA, a 57% discount to European Building Materials. We set the stock as our new sector Top Pick with a PT unchanged at €35."