CRH has potential for strong long-term growth, HSBC lifts bullish price target

CRH offers investors attractive exposure to US growth as part of a cabal of cement companies predicted to generate strong free cash flow and profit growth in the coming three years, said HSBC in a note on Thursday.

HSBC, which raised its target share price to 3,900p from 3,700p, said the synchronised global construction recovery "has not come through" as expected earlier this year, with a number of emerging markets continuing to splutter, despite a widespread improvement in EM macro-economic data and construction lead indicators.

"We now expect a more widespread recovery to be delayed until 2018-19," the bank said, with its bullish thesis from April still mostly intact.

Forecasts for a moderate and broadening Europe cement volume and price recovery are playing out, while an earlier forecast for US cement prices to rise by 6% in 2017 still on track, although the 2018-19 forecast is for 6% annual growth down from 8-9% previously.

Analysts expect CRH to benefit from US exposure as it takes 52% sales from America, and from European housing, particularly its 11% of sales from the Netherlands.

A 19% enhancement in earnings per share in 2018 from the net €1.4bn investment activity in the year to date "has also improved the risk adjusted growth potential of the group and demonstrates the value accretion potential in the broad product portfolio".

With strong potential for earning and free cash flow growth, CRH shares were reiterated as a 'buy'.