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Beaufort Securities Breakfast Alert: CRH, John Laing Group

Published: 03:34 26 Aug 2016 EDT

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Markets
Europe

The FTSE-100 finished yesterday's session 0.28% lower at 6,816.90, whilst the FTSE AIM All-Share index closed 0.30% lower at 789.67. In continental Europe, markets ended in the red amid weak economic data released in Germany. The fall was primarily ascribed to loss in mining, auto and healthcare stocks. Germany’s DAX and France’s CAC 40 shed 0.9% and 0.7%, respectively.
Wall Street
Wall Street ended marginally lower as investors remained cautious about buying ahead of Fed Chair Janet Yellen’s speech to gauge the possibility of an interest rate hike. The S&P 500 dropped 0.1%, with the healthcare sector losing the most.
Asia
Equities are trading mixed as investors eye the speech by Janet Yellen for cues on the timing of an interest rate hike. The Nikkei 225 fell 1.2% on weak consumer price data released in Japan. The Hang Seng was trading 0.4% up at 7:00 am.
Oil
Yesterday, Brent oil prices increased 1.3% to US$49.67 per barrel, and WTI prices 1.2% to US$47.33 per barrel.

Headlines
Japan consumer prices fall sharply in July
Japan’s core consumer prices (which exclude volatile fresh food, but include oil products) dropped 0.5% y-o-y in July after a 0.4% decline in June. This marks the biggest annual drop in over three years and the fifth consecutive month of decline. Weak data has pressured the Bank of Japan to expand an already huge stimulus programme.

Company news

CRH (LON:CRH, 2,540.0p) - Hold
CRH declared its interim results for the half year ended 30th June 2016 (H1 2016). Its reported sales increased 35% y-o-y to €12.7bn in H1 2016, and EBITDA rose 102% to €1.1bn. Proforma sales increased 8%, up 3% in Europe, 13% in the Americas and 4% in Asia. Proforma EBITDA increased 20%, up 5% in Europe, 39% in the Americas and 7% in Asia. Operating profit increased to €588m from €189m in H1 2015. Pre-tax profit jumped to €407m from €63m in H1 2015, leading to an EPS of 33.8 cents compared to 5.7 cents in H1 2015. Net debt as on 30th June 2016 stood at €7.1bn, €5.9bn higher than the figure reported on 30th June 2015. CRH declared an interim dividend of 18.8 cents, 1.6% higher compared to H1 2015.

Our view: CRH delivered a good performance in reporting higher revenues and margins. The company’s growth was led by solid performance in the Americas. In the US, the demand for aggregates and ready-mixed concrete was high with positive pricing trends and strong asphalt volumes; however, prices reduced due to a continuing low input cost environment. In Europe, markets stabilised, while pricing remained competitive. In Asia, the strong demand for cement, particularly in the Philippines, was supported by increased foreign direct investments in the business process outsourcing sector, overseas workers' remittances and increasing government infrastructure spend. CRH benefitted from the acquisitions it undertook in H2 2015. The company had an operating cash outflow of €0.3bn, better than the normal seasonal pattern. CRH remained focussed on cash management and de-leveraging is well ahead of the plan. However, trading conditions in Europe have become difficult after the Brexit vote and there has been a slowdown in the economy. Furthermore, the company’s huge debt remains a problem. We would like to wait and assess CRH’s performance in the near term, and maintain a Hold rating for now.

John Laing Group (LON:JLG, 254.0p) - Buy
John Laing Group declared its unaudited results for the half year ended 30th June 2016 (H1 2016). The net asset value (NAV) increased to £963.7m from £889.6m as at 31st December 2015. NAV per share rose to 263p (31st December 2015: 242p). Pre-tax profit improved to £108.3m from £32.6m in H1 2015, leading to an EPS of 29.1p compared to 9.3p in H1 2015. External assets under management stood at £1.3bn, 12.5% higher than the value on 31st December 2015. Total assets under management stood at £2.5bn (H1 2015: £2.1bn). The group’s portfolio valuation as at 30th June 2016 stood at £945.2m compared to £841.4m as at 31st December 2015. The cash yield from the investment portfolio stood at £18.3m (H1 2015: £11.4m). John Laing made investment commitments of £76.0m in H1 2016 (H1 2015: £72.1m). Some key investment commitments during the period are A6 Public-Private Partnership Parkway Road Project (Netherlands), Hornsdale Wind Farm Phase 2 (Australia), and Llynfi Wind Farm and Intercity Express Programme Phase 1 (UK). The group realised £57.7m from the sale of investments in project companies. The group sold two investments in H1 2016 to John Laing Infrastructure Fund for combined proceeds of £19.5m. In addition, the group confirmed the disposal of its investment in Dungavel Wind Farm (100% holding) to John Laing Environmental Assets Group for gross proceeds of £38.2m. On 21st June 2016, John Laing announced it would sell the UK activities of its project management services. During the period, John Laing’s two investments, namely, Rammeldalsberget Wind Farm (Sweden) and New Albion Wind Farm (UK), moved to the secondary investment portfolio from the primary one. As at 30th June 2016, the group had committed corporate banking facilities of £400.0m; these facilities will expire in March 2020 (31st December 2015: £350.0m). John Laing declared an interim dividend of 1.85p, as compared with 1.60p in H1 2015, to be paid on 28th October 2016.

Our view: John Laing, the international originator, active investor and manager of infrastructure projects, performed strongly in H1 2016 with good progress across the geographies in which it operates. The group reported an increase in NAV and profit levels. John Laing has a diversified investment portfolio with attractive opportunities across regions, which minimises the impact of Brexit. John Laing remains sufficiently funded for the development of projects. The group plans to increase the value of its existing portfolio and implement measures to develop green-field infrastructure assets. John Laing has maintained the full-year guidance for investment commitments of £180.5m, which is well ahead of the average per year investment commitments over the last five years. The group also expects disposal for the full year to be around £100m, in line with the previous guidance. We are buoyed by John Laing’s progress in H1 2016 and expect it to deliver long-term growth, aided by its strong pipeline of opportunities. Therefore, we maintain a Buy rating on the stock.

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