Pity Myles Lee, the new chief executive of CRH. The €10 billion (£9 billion) Irish building materials group has an unparalleled record among its peers of producing 15 consecutive years of growth in profits, but Mr Lee’s first task yesterday, after assuming control last week, was detailing how far profits had fallen in 2008.

That drop is not unexpected – Mr Lee’s predecessor gave warning of a decline last summer. What is new is that pre-tax profits will be down by about 16 per cent to about €1.6 billion, slightly more than was expected two months ago, reflecting a weakening of trading in CRH’s European building products division. Mr Lee also conceded that 2009 would be “extremely challenging”, with the downturn in residential construction having extended to nonresidential work in all the markets in which the company operates.

However, that has not stopped CRH’s shares rallying by more than 40 per cent from their October low, and rising a further 7 per cent yesterday, confirming the company’s status as the best performer in European building materials. CRH’s advantage is that it draws 45 per cent of its sales from the United States, making it a potential prime beneficiary of President-elect Obama’s mooted stimulus package of infrastructure spending. The company estimates that extra spending on US highways alone could total $30 billion over two years, which, if correct, could boost 2010 profits by nearly 10 per cent.

CRH is also starting to feel the benefit of lower oil prices in its more energy-intensive operations in the US – notably cement-making and liquid asphalt for road surfaces – while, should the dollar stay roughly where it is against the euro, the €50 million hit to its profits from currency moves suffered in 2008 will swiftly unwind.

Further, CRH was among the first to cut costs on signs of slowdown and it is still attacking overheads with vigour. It has identified another €375 million of savings in 2009, taking that tally over three years to a hefty €810 million. It is also trimming capital expenditure to €750 million – less than depreciation – and reining in its traditionally high acquisition spending, which fell from €2 billion in 2007 to €1 billion last year.

CRH undoubtedly faces tough near-term trading, especially in Britain, Spain, Ireland and Ukraine, but geographic diversity means that none of those territories is big enough to hurt it seriously. Rather, the shares are a straightforward play on the assumption that, having been first into the downturn, America will be the first to come out and that, even with €6 billion of net debt, CRH has a stronger balance sheet than most of its rivals. However, at €20.15, up €1.29, or 11 times this year’s earnings, and yielding 3.4 per cent, CRH’s shares have run far enough for now. Short-term investors, especially those in sterling, should lock in their gains.

Dunelm

Shareholders in Dunelm, the homewares retailer, have less reason than most to mourn the demise of Rosebys, the Yorkshire-based rival that fell into administration two months ago. With about 200 of Roseby’s stores now closed, Dunelm is in a good position to pick up some of its £70 million of annual sales.

However, any benefit has come too late for yesterday’s first-half trading update, which showed like-for-like sales down 5.6 per cent. That implies a 9.5 per cent fall over the past eight weeks, against a 3.9 per cent drop for the preceding 18 weeks. Promotional activity by the likes of Argos, Debenhams and Marks & Spencer is likely to have taken its toll of Dunelm, which is proud of its consistent pricing.

The comfort is that such resistance to ad hoc discounting and Dunelm’s tactic of sourcing about a fifth of its merchandise direct from manufacturers is reflected in its gross margins, up one percentage point. Bigger challenges lie ahead for Dunelm, not least the pressure on profits through its supply chain from sourcing goods in a much stronger US dollar. Having coped with a collapse in housing transactions (to which part of its sales are inevitably linked) and falling disposable income, Dunelm must now contend with rising unemployment.

However, there is a reason why its shares, down only 5 per cent in 2008, were one of the best performers in their sector last year. Dunelm has a strong balance sheet (£23 million of net cash), a low average transaction size (below £30) and plenty of scope to grow; it currently has 79 stores, against a medium-term target of 150.

On that front, a swath of retail failures and administrations should enable Dunelm to forge new rental agreememts on favourable terms. It is one of the few chains selling bulky goods that is actively seeking to expand at the moment.

At 144p, up 14p, or nine times current-year earnings and yielding 4.3 per cent, buy on weakness.

LCG

Unlike the wider financial sector, London Capital Group (LCG), the owner of Capital Spreads, continues to grow.

Yesterday’s trading update from the AIM-listed spread-betting specialist stated that pretax profits would be ahead of forecasts, implying 2008 pretax profits of £12.5 million, up more than a third on 2007. Better still, LCG has suffered minimal bad debts (about £100,000) after a period of unprecendented volatility in the currencies and equity indices in which its clients trade. After November’s disclosure from IG Group, the market leader, of a £15 million provision against nonpayment by its high-rolling clients, there were lingering fears that LCG might have suffered in line. The corollary is that low base rates means that LCG will earn less on the client money it keeps on deposit.

With earnings forecast to rise more than 20 per cent this year, 287p, up 29p, or ten times earnings, is still a reasonable price. Hold on.

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