Paving the Road to Alpha — Long CRH
Voss Capital is a Houston hedge fund founded by Travis Cocke in 2011, running value-oriented, bottom-up strategies focused on underfollowed small- and mid-cap special situations through long/short and long-only funds, increasingly turning activist.
In plain words
This report argues that CRH, a top supplier of cement, gravel, and asphalt in Europe and North America, is deeply undervalued. While everyone chases AI stocks, CRH enjoys local monopolies—hauling gravel is so expensive that competitors can't easily enter, and prices have fallen in only 3 of the last 52 years. The U.S. is spending $1.2 trillion on infrastructure, boosting demand. CRH just moved its stock listing from London to New York, which should attract more American investors and potentially double its valuation. It's a boring, steady business that the market is ignoring—and that's exactly the opportunity.
This Voss Capital research report focuses on the investment value of building materials giant CRH. The core argument is that while the market is overly fixated on tech sectors like AI, CRH, as a leading aggregates and infrastructure company in Europe and the U.S., is significantly undervalued. The r
Theme and Background
This chapter explores the investment value of building materials giant CRH. While the current market is broadly focused on technology sectors such as GPU chips and artificial intelligence, the report turns its attention to traditional infrastructure materials like cement blocks and crushed stone. The backdrop is that CRH, a leading aggregates and infrastructure company in Europe and the United States, recently moved its listing from the London Stock Exchange to the New York Stock Exchange.
Core Thesis
The author's core investment argument is that CRH is a top-tier operator with an outstanding track record and multi-year visibility into earnings growth. Its stock is significantly undervalued, with limited downside risk. A counterintuitive judgment is that while the market chases tech stocks, traditional infrastructure materials companies like CRH—which possess regional monopolies and strong pricing power—offer "obvious" hidden value. The move from London to New York is expected to act as a catalyst for its valuation to converge with peers.
Key Arguments and Data
1. Exceptional long-term returns: Since its founding 53 years ago, investing in CRH has generated an annualized total return of 15.0%. An initial investment of $1 million had grown to $1.5 billion by mid-2023.
2. Successful capital allocation: Over the past five years, CRH has completed dozens of transactions, with its acquisition and divestiture strategy demonstrating excellent capital allocation capabilities.
| Item | Amount/Multiple |
|---|---|
| Total acquisition spending | $10.3 billion |
| Total divestiture proceeds | $10.5 billion |
| Average acquisition EBITDA multiple | 7-8x |
| Average exit EBITDA multiple | 11x |
3. Business structure and growth focus: Approximately 75% of EBITDA comes from North American operations (10% higher than the average S&P 500 company), and the company guides that this proportion will rise to 90% by 2030.
4. End market composition: Infrastructure is its largest end market, accounting for 40% of revenue; repair, maintenance, and improvement (RMI) represent more than half of end-market usage.
5. Superior economics of aggregates business:
- Pricing power: Due to high transportation costs, the aggregates business is effectively a regional monopoly. Over the past 52 years, annual aggregates prices have declined in only three years (with an average decline of just -1.5%).
- Reserve advantage: CRH holds the largest mineral reserves for aggregates in North America, at 19 billion tons, significantly ahead of Martin Marietta (17 billion tons) and Vulcan Materials (16 billion tons).
6. Favorable supply-demand dynamics in cement:
- The annual cement production capacity in the United States is capped at approximately 100 million tons, while current annual demand is around 120 million tons.
- Strict environmental regulations make adding new capacity extremely difficult. The gap is filled by imports with significantly higher costs, supporting favorable pricing trends.
7. Scale advantage in asphalt: As one of the largest asphalt manufacturing and paving companies in the United States, CRH uses its scale to implement a "winter fill" program, allowing it to purchase and store asphalt feedstock (bitumen) at low prices during winter—something smaller competitors cannot do.
8. Synergies from vertical integration: The company is vertically integrated from upstream aggregates and cement to downstream asphalt, ready-mix concrete, and building solutions. This allows it to provide end-to-end solutions to customers, improving project efficiency and controlling costs.
Companies/Assets Involved
- CRH: The core bullish target of the report. Described as a leading aggregates and infrastructure company in Europe and the United States, with an outstanding operational track record, strong pricing power, the largest aggregates reserves in North America, and an efficient vertical integration model.
- Martin Marietta and Vulcan Materials: Major peers of CRH in the North American aggregates business. Their mineral reserve data are used for comparison to highlight CRH's reserve advantage (CRH: 19 billion tons; Martin Marietta: 17 billion tons; Vulcan Materials: 16 billion tons).
Investment Implications
For investors, this means that in the current environment where markets overlook traditional value areas, CRH offers an investment opportunity with high certainty, protected by structural factors (regional monopolies, strict supply constraints). Its transfer of listing from London to New York is expected to improve liquidity and attract more attention from U.S. investors, potentially driving a valuation revaluation. Investors should focus on the ongoing increase in the proportion of North American operations and the company's capital allocation ability to consistently create value through low-cost acquisitions (7-8x EBITDA) and high-price divestitures (approximately 11x EBITDA).
Theme and Background
This chapter explores the investment value of CRH as a leading North American building materials company, amid multiple policy tailwinds and a stock exchange uplisting. The market environment is benefiting from unprecedented U.S. government infrastructure spending bills and the trend of manufacturing reshoring.
Core Thesis
The author's central argument is that CRH's stock is significantly undervalued, and its transfer of primary listing from London to New York will serve as a key catalyst for value revaluation, driving its valuation toward that of U.S. peers. The counterintuitive judgment is that despite CRH outperforming peers on both operational and financial metrics, its valuation carries a substantial discount – an "unreasonable valuation gap" that the market will correct.
Key Arguments and Data
1. Policy Tailwinds:
- Infrastructure Investment and Jobs Act (IIJA): Of the total $1.2 trillion in IIJA funding, approximately $350 billion is allocated for highways. Within the five-year execution period of the act, federal annual highway spending is expected to increase by over 50% from the 2021 baseline of $47 billion, reaching more than $70 billion per year.
- Manufacturing Reshoring: Driven by the CHIPS and Science Act and the Inflation Reduction Act, announced manufacturing reshoring "mega-projects" are valued at over $200 billion. CRH expects U.S. manufacturing-related annual spending to increase to 2.5 times its historical level.
- Strong Regional Economies: Several of CRH's core market states (e.g., Texas) rank among the top four in employment growth since 2019. Robust local economies and record state budgets will support infrastructure investment.
2. Industry Demand Validation:
- Comments from competitors during Q3 2023 earnings calls consistently confirmed the strength of the public infrastructure market:
- Vulcan Materials: Highway project lettings increased 18% over the past twelve months; state budgets are at record levels for 2024, with expected acceleration and multi-year growth in public construction activity.
- Summit Materials: Pricing environment remains strong for 2024; transportation department budgets in key states grew 14%, project lettings (trailing twelve months) increased nearly 26%; public project backlogs in key markets are nearly double the prior year.
- Martin Marietta: In the twelve months ended September 30, 2022, state and local government highway, bridge, and tunnel contract awards increased 18% year-over-year to a record $114 billion.
3. Listing Transfer and Valuation Revaluation:
- CRH transferred its primary listing to the New York Stock Exchange on September 25, 2023. This is expected to attract more U.S. investors and drive its valuation from European peer levels closer to U.S. peer levels.
- CRH is expected to become eligible for inclusion in the S&P 500 Index after filing its 2023 annual report (10-K) in March 2024, bringing passive fund inflows.
- Prior to the transfer (Q2 2023), CRH's U.S. institutional ownership was significantly lower than that of U.S.-listed peers.
4. Significant Valuation Discount and Upside:
- Based on consensus estimates for 2024, CRH trades at 11.5x P/E and 7.0x EV/EBITDA (Voss Capital estimates 6.4x).
- In comparison, the most relevant U.S. peers trade in a range of 10-15x 2024 EV/EBITDA and 18-28x P/E.
- CRH exhibits a significant valuation discount despite having lower leverage, higher cash flow conversion, and higher return on invested capital (ROIC).
- Company guidance indicates $35 billion in cash generation over the next five years, representing over 90% of its current market capitalization ($25 billion from free cash flow and $10 billion from increasing net debt/EBITDA from 0.8x to approximately 2.0x).
- Voss Capital derives a target price of $120 per share (including dividends) based on 2025 estimates, applying 10.3x EV/EBITDA (approximately 20x P/E), implying approximately 118% upside from the current price of ~$55. This valuation is considered conservative relative to historical peer valuations of 20-30x P/E.
Companies/Assets Involved
- CRH: The core long idea in the report. As one of the largest building materials companies in North America, it is viewed as a primary beneficiary of U.S. infrastructure spending and manufacturing reshoring. Its listing transfer to the NYSE is considered a key catalyst for valuation recovery.
- Vulcan Materials, Summit Materials, Martin Marietta: U.S. peer competitors of CRH. Management comments from their earnings reports on the strong outlook for the public infrastructure market are used as third-party evidence validating robust demand in CRH's industry.
Investment Implications
Investors should focus on the systematic valuation revaluation opportunity for CRH stemming from its exchange listing transfer. The current stock price does not reflect its superior profitability, cash flow generation, and financial soundness as an industry leader during a policy tailwind cycle. As U.S. investor attention increases and potential inclusion in the S&P 500 Index materializes, its valuation converging toward U.S. peer levels (18-28x P/E) is a high-probability event, implying substantial upside in the stock price.