JP Morgan upgrades CRH

The gloom hanging over emerging markets might be lifting on a 'tactical' basis, but the poor outlook for cement prices in that geography was set to drive a wedge between European building materials firms exposed to them versus those with a greater relative footprint in the US and Europe, JP Morgan said.

Following on from the above, analysts Elodie Rall, Rajesh Patki, Emily Biddulph and David Min upgraded their recommendation on shares of CRH from ‘neutral’ to ‘overweight’ and lifted their target price from €26.0 to €29.0.

In the same research note, they started coverage Travis Perkins and Wolseley at ‘overweight’ and placed target prices on each one of them of 2,400p and 4,300p, respectively.

However, on SIG JP Morgan moved from a target of 150p to 140p, albeit while keeping its recommendation at ‘neutral’.

Cement prices in most EM’s showed quarter-on-quarter deterioration over the last three months of the year, JP Morgan pointed out.

Hence, it moved to cut profit estimates for the sector and marked-to-market its forecasts to take into account movements in foreign exchange markets.

Even after those revisions – and after having outperformed the market year-to-date - the sector was still trading on 8.2 times the broker’s estimates for firms’ enterprise value over earnings before interest, taxes, depreciation and amortisation (EV/EBITDA).

That EV/EBITDA multiple was 16% higher than the historical average.

As a result, JP Morgan told clients to take profits in Heidelberg Cement and took its recommendation on the stock down a peg, from ‘overweight’ to ‘neutral’, while trimming its target price from €83.0 to €79.0.

“We would play the sector through CRH (OW), St.Gobain (OW) and Wolseley (OW) over HeidelbergCement (N) and Lafarge Holcim (N) for the large caps.”