I think this stock could be one of the best recession investments of 2020
The Motley Fool
Published Aug 20, 2020 16:00
Updated Aug 20, 2020 16:10
I think this stock could be one of the best recession investments of 2020
We’re into a pretty deep recession, and many investors are looking for defensive recovery stocks. The name CRH (LSE: LON:CRH) might not be on the tips of everyone’s tongues. But the Dublin-based construction company has shown one of the best recoveries of the year so far. The CRH share price crashed hard when the pandemic arrived, losing almost 50% of its value by 18 March. By comparison, the FTSE 100 dipped 35% year-to-date at its lowest point.
Since then, the CRH recovery has been astonishing, despite economies worldwide heading into recession. Just about all of that early loss has been regained, and the shares are a mere 5% down in 2020 so far. Meanwhile, the Footsie still languishes around 20% down.
The company released interim results Thursday, and the share price responded with a 2% drop. That’s hardly anything really.
Pandemic response Chief executive Albert Manifold said: “As a group we took swift and comprehensive action in response to the Covid-19 crisis, and our ability to flex our cost base and deliver improved profitability, margins and cash generation in a rapidly evolving environment demonstrates the strength and resilience of our business.“
It all seems to have paid off, with revenue for the half falling just a modest 3%. And on the earnings front, things are positive. EBITDA rose by 2%, with the firm’s EBITDA margin gaining 70bps to 13%. The company also reported record cash generation, and maintained its interim dividend in line with last year. Looking for a recession investment? CRH doesn’t appear to have seen any recession.
Liquidity But in times like this, bottom-line profit is not necessarily what matters. I’m looking more for the safety of liquidity these days. On that score, CRH managed to reduce its net debt figure by an impressive $3.8bn — from $11.6bn at the same stage last year, to $7.8bn. That’s still a big figure, but things should improve further by the end of the year. The company said: “As in prior years, we expect a strong operating cash inflow in the second half of 2020.”
At 2019 year-end, the company’s net debt/EBITDA ratio stood at 1.7x, and that’s a level that makes me twitchy. Many investors look for a maximum of 1.5x, and I prefer to see less than that. But we should see an improvement by year-end, and CRH does say it “had $10bn of cash with sufficient liquidity to meet all maturing debt obligations for the next 4.9 years” at 30 June.
Recession outlook We need to see how CRH progresses as the year develops. But we’re already seeing signs of a so-called V-shaped recession, and we could be out of it relatively quickly. After all, GDP actually improved in May — only by 1.8%, but I find that encouraging.
Get The App
Mr Manifold went on to say: “The outlook for the rest of the year and into 2021 remains uncertain and is dependent on an improving health situation across our markets.”
So CRH still faces plenty of uncertainty. But from here, I’m seeing a well-managed and resilient company. And it looks like a good defensive recession investment to me.
The post I think this stock could be one of the best recession investments of 2020 appeared first on The Motley Fool UK.
us better investors.
Motley Fool UK 2020
First published on The Motley Fool
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.