It was reported across the financial wires on Friday that Texas Industries (market capitalisation: $1.9 billion) has retained Citigroup to find a buyer for the business given that the two largest holders of the company (SouthEastern Asset Management 28.2%, NNS Holdings 23.2%) have been looking to sell their stakes in the business. <p>

Texas Industries mainly focuses on the Texas and California markets and is active in cement, aggregates and concrete markets. While the end markets that the company operates in have been improving, particularly in California, the strengthening performance would appear to all ready be captured in the current share price. <p>

Texas Industries is forecast to be loss making in 2014 before becoming profitable in 2015. Currently, the company is trading on a FY 2014 EV/EBITDA basis of 17.8x (2015: 12.6x) while the P/E for 2014 is negative, on a FY 2015 basis it equates to 45x. <p>

Against these lofty multiples we think it will be difficult to sell the company as a whole at the current market capitalisation of $1.9 billion. Many of the US market participants (Vulcan Materials, Martin Marietta and Cemex) have over extended balance sheets and are working to bring debt levels down. International companies with exposure to the US (Lafarge, HeidelbergCement and Holcim) have also been taking similar deleveraging steps in recent years and are currently dealing with emerging market and consequent currency headwinds at the moment. <p>

For CRH, the group is not active in the cement market in the US and while it does have several different operations in Texas, California is not a heavy side construction market that it is active in. Also the valuation multiples being implied by the current share price would likely make the deal unattractive to CRH as it would be significantly more expensive than it would typically pay. <p>

As a result, we would be surprised to see the Texas Industries business being bought outright but we would not be surprised to see multiple market participants show interest in components of the business were it to be sold off in bundles.
<p><h5>David Holohan</h5>


Disclaimer: www.merrion-capital.com/disclaimer

Merrion Stockbrokers Limited (registration no. 307878)
is a limited liability company whose registered office is at
Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.