The weakening US dollar/euro exchange rate has prompted broker Davy Research to reduce its earnings forecasts for building materials giant, CRH.

The broker has changed its full-year US dollar/euro exchange rate assumption to 1.58 from 1.52. Thus reducing full-year 2008 EPS forecast to 272.2c from 276.6c, a decline of 1.6%.

It also cut its full-year 2009 earnings per share forecast by 3%.

The 2008 forecast represents year-on-year (yoy) growth of 2%. It does not include the impact of 2008 acquisition spend or the full impact of the ongoing share buyback programme.

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A Davy analyst, Barry Dixon said: "We have reviewed the assumptions underlying our forecasts for each of CRH's divisions and are leaving these unchanged.

"We believe that there could be some upside to our forecast for the European Materials division given the continuing strength in Poland and the Ukraine.

"Any improvement here could be offset by further weakness in the Americas Products and Distribution divisions, in particular if the non-residential market begins to slow. US infrastructure markets remain solid with aggregates prices still expected to increase by a mid-single-digit percentage."

He added: "At 2410c, CRH is trading at 8.9 times our revised 2008 EPS forecasts and at an EV/EBITDA multiple of 6.0 times.

"This makes it one of the cheapest stocks in the global building materials sector. Based on our revised forecasts, we estimate that CRH will generate almost €1.1bn of free cash flow in 2008 (after spending $1.1bn on capex). This represents a yield of 8.5%, amongst the highest in the sector."

(VB)