Digging for Canadian Construction Investments: Few Publicly Traded Choices

Canada is rumbling with construction equipment. In downtown Toronto, dozens of tower cranes pierce the skyline, lifting buckets of concrete and other building materials off trucks far below that seem to block every major street. Outside Toronto, bulldozers and backhoes rumble across fields, building new highways and turning farms into subdivisions.

Investment in non-residential construction reached a record high $6.6 billion in November, the fourth consecutive monthly increase, says a 20 January 2025 report from Statistics Canada. The industrial component climbed by 2.2% to $1.4 billion, commercial rose 0.4% and institutional rose to $1.9 billion. Single-family home construction investment rose 2.9 million to $7.3 billion in November, with Ontario leading the national gains.

Toronto had the most tower cranes of 14 North American cities in the third quarter of 2024, according to Rider Levett Bucknall’s biannual Crane Index for North America. Toronto’s core area alone had 83 tower cranes, including 43 in the residential sector and 26 in the mixed-use sector, the RLB index said.

All this activity is obviously good for construction companies and it would be nice if Canadian investors could participate. Unfortunately, the choices are limited. Most of the largest Canadian construction companies, such as PCL Constructors Inc., EllisDon Corp., Graham Construction & Engineering, Kiewit Canada Group and Ledcor Group are all owned by their employees, while Montreal-based Pomerleau Capital and most home builders are privately owned. As for cement makers, CBM, Canada Building Materials, and St Marys Cement are brands owned by Brazil’s Votorantim Cimentos International S.A., whose shares are difficult to buy in North America. Another cement maker, Lafarge, is owned by Swiss-based building materials maker Holcim Ltd., whose unsponsored ADR (HCMLY) trades in the U.S. over-the-counter market.

In the road-building sector, Canadian motorists have probably seen Miller Group’s brown and tan trucks on major highways. While it might be nice to hold shares in Miller, the company is a subsidiary of Paris, France-based Colas Group, one of the world’s largest road construction and maintenance companies. Colas, in turn, is owned by Paris-based conglomerate Bouygues SA, whose shares are down 18.5% over the past year and trade for a full 23% less than what they were five years ago, making them suitable only for the most patient of bottom fishers.

Here is a look at a builder, a forestry company and an Irish cement and asphalt maker whose shares may outperform the broad market.

Bird Construction (BDT/TSX)

Founded in 1920, Mississauga, ON. based Bird Construction Inc., focuses on projects in the industrial, institutional, and infrastructure markets. The company’s clients are usually found in sectors such as oil and gas, chemicals, natural resources, energy, water and wastewater.

In the first half of 2024, Bird’s share price climbed steadily from about $12 at the beginning of the year to $26 through June and July before dipping to about $22 in September. The shares took flight in October, rising to a record $33 from $22, on news of a dividend increase and an ambitious growth plan, but have since come back to more reasonable levels . At a current price of $24, Bird has a market capitalization (shares times share price) of about $1.3 billion and trades about 14 times earnings per share, or 9.3 times forward earnings.

In October Bird announced a 50% increase in the monthly dividend, which itself followed a 30% increase in March 2024 and a 10% hike in March 2023, more than twice the monthly payout Bird paid in 2022. The monthly dividend of $0.07 per share or $0.84 annually yields about 3.5%. When dividends are factored in, Bird’s shares have generated a one-year total return of more than 53%.

Along with the latest dividend increase, Bird announced an ambitious strategic plan for 2025 to 2027. Bird said it plans to have its annual revenue grow by about 10%, with another five per cent added for 2025 when it includes revenue generated by its $135 million acquisition of Surrey, B.C.-based contractor Jacob Bros. Construction, which closed in August 2024. Jacob Bros focuses on civil infrastructure projects such as airports, bridges and energy projects.

Bird said it would aim for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin of eight per cent for 2027 and to pay out a third of its net income in dividends.

On 5 November 2024, Bird reported third-quarter net earnings of $36.2 million or $0.66 per share on revenue of $898.9 million, compared to $28.8 million in net earnings ($0.54 per share) on revenue of $783.8 million in the same quarter of 2023. Net income was up by a full 42% over the same quarter a year ago, while revenue was up 15%. For the first nine months of 2024, revenue was up by 23%, while net income was 42% ahead. Full year results will be released March 12.

Bird reported that its backlog of contracted work grew to $3.8 billion, including about $360 million when it closed the acquisition of Jacob Bros acquisition, while its pending backlog grew to $4.1 billion of expected future work. The company said it plans to retain two-thirds of its net income to support its growth in 2025 and beyond.

The TipRanks site, which collects analyst opinions and target prices, gives an average 12-month target for Bird shares of $38.98, based on five Wall Street analysts offering 12-month price targets for Bird Construction in the last three months. The highest analyst target was $54.91 while the lowest forecast was $32.

Doman Building Materials Group Ltd. (DBM/TSX)

Vancouver-based Doman Building Materials began with logging, milling and trucking lumber on Canada’s West Coast in the 1950s, opening its first lumber treating plant in the 1980s, and eventually becoming a major manufacturer and distributor of building products. The company operates timberlands, sawmills, planing mills, pressure treating facilities and distribution centres throughout Canada and the United States. Roughly three-fourths of Doman’s sales come from construction materials, with the rest coming from specialty and allied products.

On 1 October 2024, Doman announced it had paid US$255 million in cash for South Carolina-based Tucker Lumber, which includes a specialty sawmill, dry kilns, treating plants, remanufacturing operations and distribution facilities.

Doman’s shares are volatile and suited only to momentum investors prepared to accept risk and trade actively. A chart of Doman’s share price shows the stock peaked at $9.87 in December before sliding to $7.80 in early February. At that price, Doman has a market cap of $680 million and trades at about 12 times trailing 12-month earnings per share.

The rise in the share price came despite weak earnings announced on 7 November 2024. In the third quarter of 2024, Doman’s net earnings were just $14.6 million on revenue of $663.1 million, vs. net earnings of $21.2 million on revenue of $643.9 million in the third quarter of 2023, which the company blamed on lower average pricing when compared to 3Q 2023.

Revenue increased three per cent over the third quarter of 2023, thanks largely to the contribution made by the first-quarter acquisition of Southeast Forest Products, Ltd.. Gross margin and EBITDA were close to what they had been in 3Q 2023. Full year results will be released Feb. 27.

The company’s quarterly dividend yields a generous 7.2%.

The TipRanks site gives an average 12-month target for Doman shares of $11.50, based on three Wall Street analysts offering 12-month price targets for Doman in the last three months. The highest analyst target was $12 while the lowest forecast was $11.

CRH PLC (CRH/NYSE)

Canadian investors need not stick to Canada, however. The Canadian dollar has plunged recently and lately was trading at a mere US$0.70, which means any U.S. dollar-denominated investment is expensive. Despite the cost, CRH PLC, an Irish construction materials giant that reports in U.S. dollars, may still be worth a closer look.

One of the largest companies in Ireland, Dublin-based CRH and its subsidiaries produce aggregates, cement and asphalt used in construction and roadbuilding projects around the world. CRH employs more than 90,000 people in 37 countries, with its North American operations accounting for about 75% of its EBITDA.

CRH’s Canadian unit, CRH Canada, has more than 4,000 employees working at more than 100 active sites. CRH Canada includes business units such as concrete and asphalt makers Dufferin Aggregates, Dufferin Concrete and Dufferin Construction, and other names such as Ash Grove Cement, Ontario Redimix and Demix Construction in Quebec.

CRH’s shares have essentially tripled over the past two years and are up almost 40% in the past year, rising to more than US$100 from about $66. The company has a market capitalization of US$68 billion, while its quarterly dividend of US$0.35 a share, up five per cent over the previous year, yields a modest 1.4%.

The company’s third-quarter results, announced 7 November 2024, showed net income of US$1.4 billion or US$1.99 per share on revenue of US$10.5 billion. Net income climbed by five per cent over the same quarter a year ago, while earnings per share rose 10% thanks to an ongoing share buyback. Total revenue was up four per cent over the same quarter of 2023.

Fourth quarter and full year results will be released Feb. 26.

The TipRanks site gives an average 12-month target for CRH shares of US$121.64, based on 15 Wall Street analysts offering 12-month price targets for CRH in the last three months. The highest analyst target was US$136.90 while the lowest forecast was $95.07. The average price target represents a 20.5% change from the last price of $102.80.