BoA Merrill downgrades CRH, Wolseley on US construction woes

Bank of America Merrill Lynch downgraded CRH to ‘underperform’ from ‘buy’ and cut the price target to 1,500p from 2,200p.

It also cut Wolseley, to ‘neutral’ from ‘buy’ while dropping the price target to 4,000p from 4,500p as it took a look at the US construction sector.

“We see downside risks to US construction activity for the next two years, relative to optimistic market expectations of ongoing strong growth. We believe the slowdown experienced in 2015 US industrial activity (oil & gas and mining driven) could progressively have some negative impact on some segments of US construction, in particular in the private non-residential sector,” it said.

As far as CRH is concerned, it said that with Europe likely to see, at best, a slow recovery in volumes and earnings, with upside to volumes but ongoing uncertainties around the pricing outlook, slowing growth in US construction could be a negative catalyst for the share.

Merrill noted that CRH has around 20% sales and profits exposure to US non-residential activity.

On Wolseley, the bank said positive trends in trading and the relative weight of the USA in revenue (64% of group) and operating profit (77%), have been key positives for its previous bullish thesis on the stock, not least because the strength of the US operations was sufficient to ‘gloss over’ weakness in other smaller territories periodically.

“However, the fourth quarter decline in Industrial sales in the USA reduced full year growth and prompted us to scale back growth expectations with the full year results at the end of September.”

At 1416 GMT, CRH shares were down 0.3% at 1,796p and Wolseley was off 0.4% at 3,801p.