"Hi Eoin and hope all is well with you. Sorry for the delay in replying as I have been on holidays. On our recently downgraded earnings estimates for this year, we have the CRH dividend only covered about 1.1 times, so it would be imprudent to assume the a dividend cut is not a significant risk. About half the earnings come from Europe and the other half comes from the US, so there is no significant connection to the faster growing emerging and commodity rich economies. Much of the aggregates business is in fact a form of mining, but value / volume considerations dictate dependence on local (as opposed to global) demand conditions. The main disappointment of late has been in the US where infrastructure spending on roads etc (accounting for about half of CRH's US earnings and a quarter of overall earnings) has been weaker than expected. Perversely, this was seen as attractive exposure for CRH some months ago as markets were waiting for Federal fiscal stimulus measures to work their way through. It would appear however, that cutbacks in spending by cash-strapped States on roads etc have been outweighing the federal stimulus spending. Pricing for aggregates has been weakening, so CRH is taking a hit on top-line and on margins. Apart from the earnings outlook, investors have recently been less assured about the otherwise highly rated management and business model, with two of the senior US management team having departed to a private equity operation fishing in the same acquisition pond as CRH and with the rate of CRH's acquisition spending having slowed significantly despite last year's rights issue having been justified on grounds of such investment opportunity. I think CRH will come out of this with its record for being a quality company intact, but I would not go so far as to say that the dividend is not at some risk. So, maybe it is not the best example of a stable high yield situation, given its sensitivity to the economy, albeit that the share could well be offering very attractive longer term value at the current level. I note that the index for US construction spending has not yet bottomed and perhaps, the safety of the dividend would be more assessable after we see evidence of this."

Eoin Treacy's view Thanks to Bernard McAlinden of NCB Stockbrokers for this detailed assessment of how likely CRH is to reduce its dividend. (Also see Comment of the Day on August 24th). I fully agree that the share offers significant medium to long-term upside potential, predicated on the eventual recovery of the US and European infrastructure development and general construction. http://www.fullermoney.com/x/default.html?id=1978&schtxt=ncb

The share has been deteriorating since May but accelerated to a low near €11.50 on the latest earnings announcement. It has rallied somewhat since in what may be the beginning of an unwinding of the deeply oversold condition relative to the 200-day MA. Even if the share cannot sustain the current rally and moves to new lows, the downside risk would appear to be relatively limited given the extent of the decline already sustained.


China Cheat Sheet Helps Investors Survive - Thanks to a subscriber for this informative and common sense article by Ben Simpfendorfer of RBS for Bloomberg. Here is a section:

Moreover, much of the country's growth has so far benefited companies, rather than households. That's one of the downsides of a low-cost business model. Exports and corporate profits have surged, but low wages have generally depressed private consumption and created social stresses.

It's no surprise then that the government is now aggressively trying to address these imbalances, by lifting minimum wages and improving working conditions. The focus on raising wages and preventing job losses is one reason China has yet to revalue its currency, as critics have demanded, and why it is likely to resist such calls in the future.

Fifth, structural-growth drivers are as important as cyclical ones. The liberalization of China's housing industry in 1998, for instance, explains much of the country's surging growth. Until then, the state provided most of the housing stock. But reforms allowed households to buy bigger and better homes, and property developers built them.

It might be that the structural drivers are now being overwhelmed by cyclical ones and that China is experiencing a housing bubble no different from those of the U.K. and U.S. If so, the bears will soon be proven right as the bubble bursts and China's decade-long boom will be brought to a screeching halt. But if the bears are proven wrong, it will be because of the emergence of new structural drivers.

Urbanization is one such driver. Some analysts say China's urban population will grow by 15 million people annually over the next 10 years, implying an extra 5 million apartments annually -- a huge source of demand.

Services are another. China's manufacturing is still the largest driver of growth, but there are the early signs of an emerging services sector, from car rental to cinema multiplexes.

My comment - China has made incredible economic progress in a relatively short period of time by leveraging its massive population to become the world's low margin manufacturing hub. This has led to rising standards of living for hundreds of millions of people but much remains to be done if China's development ambitions are to be attained.