JP Morgan expects boost for CRH from higher US government spending

CRH was well-placed to benefit from recently passed legislation Stateside to boost spending on infrastructure, analysts at JP Morgan said.

Based just on guidance from US aggregates companies there was 7% upside to then current estimates for the company´s earning per share in 2016, Elodie Rall, Rajesh patki, Emily Biddulph and David Min said in a research note sent to clients.

The outlook for construction activity in the States was robust, the analysts said, underpinned as it was by structural undersupply in the housing market and the recent approval by the federal government of funding for highways, the so-called 'Fast Act'.

Fast was expected to result in higher federal spending in 2016-2020 and provide states with the confidence necessary to undertake the necessary planning for long-term infrastrucrture projects.

That would give the Dublin-based company´s America´s Materials´ Division - which generated about 55% of its earnings before interest, taxes, depreciation and amortisation - a shot in the arm, the broker said.

Fatter margins wre also likely at its asphalt arm, given bitumen costs had dropped further.

The shares valuation was attractive, ther broker said, as they were changing hands at only 8.3 times their estimate for the firm´s 2017 EBITDA, versus the average 15% premium at which they had traded over the past three years.

Higher consensus earnings estimates and falling leverage should see that gap close, JP Morgan added.

"Our revised EV/EBITDA-based PT of €30 to May-17 suggests 12% upside, although we note that an SOTP valuation would lift our PT to €33, 23% upside potential."

Rall and his team stood by their 'overweight' recommendation on the stock.