Cevian wants simpler CRH structure
CRH needs to press ahead with extensive structural improvements, activist shareholder Cevian Capital has said, adding that the Dublin-based building materials company could double in value in the next three to five years if it does so.
CRH has been on a €8.8bn acquisition spree over the past four years, accumulating a complicated structure, but has now begun shedding some assets and put its €2bn European distribution arm up for strategic review.
US-based peers Eagle Materials and Summit Materials have both attracted activist attention this year, and Cevian, Europe’s biggest activist shareholder, disclosed its almost 3% stake in CRH in February.
CRH has around 90,000 staff and strong market positions in Europe and north America, where it is the biggest producer of aggregates and asphalt for highway construction. The group’s businesses include heavy materials, building products and distribution.
"This is an attractive industry and CRH has a strong position in its main markets, but the company has become too complex, both structurally and operationally, which hampers performance and traps value," says Cevian’s managing partner Christer Gardell.
“The restructuring work that has been done so far is good, but continued far-reaching structural and operational improvements are needed for the group’s assets to reach full potential”, he said in Cevian’s first detailed comments on CRH since disclosing the stake. He said Cevian had met CRH's board and chief executive Albert Manifold several times in recent months and he was confident they would drive the measures still needed.
“They seem to be both pragmatic, shareholder-oriented and willing to ask fundamental questions around the businesses.”
CRH shares have fallen about 3% in the past year.
They were trading up 0.5% in Dublin yesterday. In a bid to boost shareholder returns, CRH last year started buying back shares and set a medium-term target to sell €1.5bn-€2bn worth of noncore assets.
CRH's business in the Americas has gained in importance in recent years and now accounts for about two-thirds of the group’s core profit, but the valuation gap between CRH and its more focused US peers remain pronounced.
CRH reported a 12.6% core profit margin in 2018 on sales of nearly €27bn, and targets a margin of about 16% by 2021. Cevian says raising CRH’s margin to that level would warrant a 60% to 70% appreciation in value.
