Morning Note: Market news and an update from building materials company CRH.

Market News

The gold price has risen past $2,360 per ounce, driven by traders’ expectations of a Federal Reserve interest rate cut following recent economic data. Yesterday’s data revealed a higher-than-expected increase in Americans filing for unemployment benefits last week, indicating a gradual cooling of the labour market. Investors anticipate that the Fed will initiate its easing cycle in September. Lower rates tend to benefit non-yielding gold. The 10-year Treasury yield slipped to 4.46%.

US equity markets also moved higher last night – S&P 500 (+0.5%), Nasdaq (+0.3%) – as did markets in Asia this morning: Nikkei 225 (+0.4%); Hang Seng (+2.0%, boosted by tax-waiver plan); Shanghai Composite (+0.1%). Japan’s consumer spending fell for the 13th straight month in March. The FTSE 100 is currently trading 0.4% higher at 8,413, another new high. Anglo American’s South Africa investors have hinted they are open to an improved BHP bid.

Joe Biden is set to unveil China tariffs as soon as next week, targeting key sectors including EVs, batteries, and solar equipment, people familiar said. He’s expected to reject the across-the-board tariff hikes sought by Donald Trump. Meanwhile, HSBC, Standard Chartered, and other major UK firms are pressing Rishi Sunak’s government to tone down proposed restrictions on doing business with China. They’re urging ministers not to include Beijing in the strictest risk category of new national security legislation, people familiar said.

As expected, the Bank of England left interest rates unchanged at 5.25%. However, the Monetary Policy Committee signalled it could cut rates this summer. They voted 7-2 in favour of holding rates, with two members voting for an immediate cut. Sterling slipped on the announcement and currently trades at $1.2529 and €1.1621. Meanwhile, the UK bounced back strongly from a recession in the first quarter, with GDP rising 0.6% compared to the previous three months.

Source: Bloomberg

Company News

CRH has today released its Q1 results which highlight a solid start to the year in the seasonally least significant quarter. The group also maintained its full-year guidance, and in response, the shares have been marked up 2% in early trading.

CRH is a global building materials business, with c.3,400 operating locations in 29 countries, with market leadership positions in North America and Europe. The group generated sales of $35bn in 2023.

The company manufactures and supplies a range of integrated building materials, products and innovative end-to-end solutions which can be found throughout the built environment in a wide range of construction projects from major public infrastructure to homes and commercial buildings. The group divides its operations into Materials Solutions (made up of aggregates, asphalt, ready-mixed concrete, paving & construction services, and cement) and Building Solutions (made up of architectural products, infrastructure products, and construction accessories).

In the three months to 31 March, sales grew by 2% to $6.5bn, driven by positive pricing, early-season activity, and benign weather in key markets. Organic revenue, which strips out the impact of currency and M&A, was 1% ahead.

Group adjusted EBITDA grew by 15% to $445m, with the margin up 80 basis points to 6.8%. This was driven by the continued delivery of the group’s integrated solutions strategy, strong commercial progress, ongoing cost control, and further operational efficiencies.

In Americas Materials Solutions, revenue was up 16% as early-season project activity and favourable weather in key markets supported activity along with price increases across all lines of business and good contributions from acquisitions. Organic growth was 13%. In Americas Building Solutions, growth of 2% was led by price improvements as well as contributions from acquisitions. In organic terms, the business was flat.

Europe Materials Solution experienced an 8% decline as positive price momentum was offset by lower activity levels due to unfavourable winter weather and the divestiture of the Lime operations. The organic decline was 5%. Europe Building Solutions total revenue was 10% lower as favourable pricing was offset by subdued demand in new-build residential markets as well as adverse winter weather conditions. The organic decline was 12%.

CRH has a strong and flexible balance sheet, with net debt of $9.6bn. The group is currently undertaking a share buyback programme, with the final $0.6bn completed to date in 2024 and a new $0.3bn quarterly tranche to commence in August. The group has recently transitioned to quarterly dividend payments and has today declared a payout of $0.35, 5% higher than last year.

The group has continued to grow its business organically, with $2.2bn-$2.4bn of capital expenditure expected in the year, and through M&A. During the period, the group completed a $2.1bn materials acquisition in Texas, following which $60m of run-rate synergies have been identified. In addition, seven other strategic bolt-on acquisitions were completed and a $0.7bn agreement to acquire majority stake in Adbri in Australia was entered into.

The group continues to rationalise its business through the sale of non-core assets – during the quarter $0.7bn was raised primarily related to the initial phases of its European Lime disposal.

Looking forward to the rest of the year, the group expects a favourable market backdrop and continued positive pricing momentum. Its operations in North America are expected to benefit from significant infrastructure activity and increased investment in key non-residential segments, while in Europe, the company expects good underlying demand in infrastructure and key non-residential markets, further supported by disciplined cost control. Residential construction, particularly new-build activity, is expected to remain subdued across our markets in the near term. The company has confirmed its full-year guidance for adjusted EBITDA of $6.55bn to $6.85bn, up around 8% on the prior year.

Source: Bloomberg