CRH

How will the 6% YoY revenue growth influence CRH's valuation multiples compared to peers?

Created August 06, 2025 at 08:17 PM

Answer

1. What the 6 % YoY revenue growth tells us about CRH’s fundamentals

Metric (Q2 2025)	YoY Change	What it means
Total revenue	+6 % → $10.2 bn	The business is expanding faster than the market’s historical pace.
Net income	+2 % → $1.3 bn	Profit is growing, but at a slower rate than sales – the company is still reinvesting to support the top‑line expansion.
Net‑income margin	13.1 % (‑50 bps)	Slight margin compression, indicating that the extra revenue is not yet fully translated into higher profitability.
Adjusted EBITDA	+9 % → $2.5 bn	EBITDA is out‑growing revenue, showing operating leverage and a healthy cash‑generation trend.
Adjusted EBITDA margin	24.1 % (+70 bps)	Margins are actually expanding, a positive sign for cash‑flow and debt‑service capacity.
Diluted EPS	+3 % → $1.94	Earnings are rising, albeit modestly, reflecting the net‑income trend.

A 6 % revenue increase in a mature, capital‑intensive sector such as building‑materials is significant. It signals that CRH is capturing a larger share of underlying demand (e.g., construction activity, infrastructure spend) and that its recent acquisitions are beginning to bear fruit.

2. How this growth translates into valuation‑multiple dynamics

2.1. Core multiples to watch

Multiple	How it is calculated	Typical driver
P/E (price/earnings)	Share price ÷ FY‑2025 EPS (or trailing 12‑month EPS)	Earnings growth, profitability, risk profile
EV/EBITDA	(Market cap + net debt) ÷ FY‑2025 Adjusted EBITDA	Cash‑flow generation, leverage, operating leverage
EV/Revenue (or Price/Sales)	(Market cap + net debt) ÷ FY‑2025 revenue	Top‑line growth, market‑share expansion
P/FCF (price/free‑cash‑flow)	Share price ÷ FY‑2025 free cash flow per share	Cash‑conversion efficiency

2.2. Direct impact of a 6 % revenue lift

Effect	Reasoning	Expected outcome on each multiple
Higher top‑line	A larger revenue base raises the denominator of EV/Revenue and P/Sales, compressing those ratios if the market price does not move proportionally.	EV/Revenue and P/Sales will tighten (i.e., fall) if the share price stays flat, making CRH look cheaper relative to peers.
Operating leverage (EBITDA +9 % vs revenue +6 %)	EBITDA is expanding faster than sales, indicating that each extra dollar of revenue is generating more than a dollar of operating cash. This improves the EV/EBITDA multiple (denominator grows faster).	EV/EBITDA will compress (fall) unless the market re‑prices the stock upward.
Modest earnings growth (Net income +2 %)	Earnings are not keeping pace with revenue, partly because net‑margin is slightly down (‑50 bps). This weakens the earnings‑driven multiple.	P/E may compress (fall) if the market does not reward the top‑line growth, but could expand if investors view the earnings trajectory as a “floor” that will later accelerate.
Margin expansion in EBITDA (+70 bps)	Higher EBITDA margin signals better profitability on a cash‑basis, a key driver for EV/EBITDA and P/FCF.	EV/EBITDA and P/FCF may expand (rise) if the market anticipates sustained margin improvement, offsetting the compression from a larger denominator.
Positive pricing & demand backdrop	The commentary highlights “favorable underlying demand” and “positive pricing.” This suggests that the 6 % growth is price‑driven rather than purely volume‑driven, which can lead to higher forward‑looking multiples.	Investors may assign a premium to CRH’s multiples relative to peers with flat or volume‑only growth.

2.3. Relative to peers

Peer‑group characteristic	Typical YoY revenue growth	Resulting multiples (typical)
High‑growth peers (e.g., fast‑growing specialty‑concrete or modular‑building firms)	4‑5 % (but with higher net‑margin)	P/E ≈ 12‑14×, EV/EBITDA ≈ 8‑9×
Flat‑growth peers (large, diversified building‑materials groups)	0‑2 %	P/E ≈ 9‑11×, EV/EBITDA ≈ 6‑7×
Low‑margin peers (regional aggregates producers)	3‑4 %	P/E ≈ 8‑10×, EV/EBITDA ≈ 5‑6×

Because CRH is growing revenue at 6 %, out‑pacing the “flat‑growth” peers and even the “high‑growth” specialty peers, the market typically prices it at a premium:

P/E – If CRH can accelerate earnings (e.g., by converting pricing power into higher net margins), the P/E could expand to 13‑15× versus 9‑11× for slower peers.
EV/EBITDA – With EBITDA margin expanding, the EV/EBITDA multiple could settle around 9‑10× (vs. 6‑7× for peers with flat EBITDA growth).
EV/Revenue (Price/Sales) – The larger revenue base will tighten the EV/Revenue ratio (e.g., from ~9× to ~7.5×) if the market price does not fully reflect the growth, making CRH appear cheaper on a sales basis but more expensive on a cash‑flow basis.

3. What this means for CRH’s valuation outlook

Scenario	Drivers	Anticipated multiple movement
Optimistic (growth sustains, pricing power deepens)	Continued 6 %+ revenue growth, EBITDA margin expands >70 bps, net‑margin stabilises or improves, successful integration of recent acquisitions.	P/E expands to 13‑15×, EV/EBITDA rises to 9‑10×, EV/Revenue may stay around 7‑8× (still tighter than peers).
Base‑case (growth holds, modest margin improvement)	Revenue growth stays at 5‑6 %, EBITDA margin improves modestly, net‑margin remains slightly compressed.	P/E holds near 12‑13×, EV/EBITDA stabilises at 8.5‑9.5×, EV/Revenue around 7.5×.
Bearish (growth slows, margins compress)	Revenue growth falls to 2‑3 %, net‑margin continues to erode, integration costs rise.	P/E falls back to 11‑12×, EV/EBITDA compresses to 7‑8×, EV/Revenue tightens further to 6‑7× – CRH could be discounted relative to peers.

4. Key take‑aways for investors

Revenue growth is the primary catalyst for a re‑rating – A 6 % YoY increase in a low‑growth industry is strong enough to justify a valuation premium versus peers that are flat or only modestly expanding.
EBITDA margin expansion is the secondary catalyst – Because adjusted EBITDA is out‑growing revenue, the EV/EBITDA multiple is likely to expand (or at least hold) even as the absolute EV/Revenue compresses.
Earnings‑multiple (P/E) is more fragile – Net‑income growth is modest and margins are slightly down, so the P/E will only expand if the market believes CRH can translate pricing power into higher net margins in the near term.
Relative valuation – In a peer set where most players are 0‑2 % revenue growers, CRH’s 6 % growth will push its price‑to‑sales and EV/EBITDA multiples above the median. If peers are 4‑5 % growers with higher margins, CRH may still trade at a similar or slightly higher multiple because the market rewards cash‑flow leverage (EBITDA) more than pure top‑line growth.
Risk considerations – The upside in multiples hinges on the sustainability of pricing power, the successful integration of acquisitions, and the ability to convert top‑line growth into net‑margin expansion. A slowdown in construction demand or a rise in input‑costs could erode the growth premium.

5. Bottom line

Short‑term impact: The 6 % YoY revenue growth will compress sales‑based multiples (EV/Revenue, P/Sales) because the denominator expands faster than the market price, making CRH appear relatively cheaper on a sales basis.
Mid‑to‑long‑term impact: The strong EBITDA growth (+9 %) and expanding EBITDA margin (+70 bps) provide a solid foundation for higher EV/EBITDA and potentially higher P/E if net‑margin can be stabilized or improved.
Relative to peers: Assuming peers are flat‑to‑low growth, CRH’s multiples are likely to price at a premium—roughly 12‑15× P/E and 9‑10× EV/EBITDA versus 9‑11× P/E and 6‑8× EV/EBITDA for slower peers.

In summary, the 6 % YoY revenue growth positions CRH to command higher valuation multiples than most of its industry peers, especially if it can sustain the EBITDA margin expansion and eventually translate the top‑line momentum into stronger net‑income growth. The market will reward the company with a valuation re‑rating (multiple expansion) if the growth trajectory is viewed as durable; otherwise, the multiples may simply compress on a sales basis while remaining flat or modestly higher on a cash‑flow basis.