Interactive Investor

Ashtead: Great results, but investors divided

11th December 2018 11:14

Richard Hunter from interactive investor

After an early rally petered out despite strong numbers, interactive investor's head of markets Richard Hunter searches for clues as to sentiment in these interim results.

Given Ashtead's continuing meteoric rise in earnings and profit, the fact that the share price has lost a third of its value in the last three months is something of a conundrum.

On the face of it, the company is riding the wave of an economic boom, particularly in its dominant US market, where tax cuts and a healthy construction market have propelled a 19% increase in half-year earnings, which is largely responsible for the improved profit figure. 

Meanwhile, the Canadian business has received an immediate boost through acquisitions, the earnings per share figure has moved sharply higher, partially because of a supportive share buyback programme, whilst debt remains under control given the strength of cash generation. 

In terms of outlook, the company has effectively issued a profits upgrade given the ongoing strength within its operations.

Source: TradingView (*) Past performance is not a guide to future performance

However, there have been more recent concerns of an imminent downturn in the US construction market – and, for some, the economic situation in general – which has led to an erratic performance of late in the major indices. 

Coupled with Ashtead's exposure to an extremely cyclical market and an acquisitive nature which brings potential execution risks, the shares have been pounded even if the company’s performance is painting a different picture. 

From an investment perspective, the dividend yield of just over 2% is unremarkable, although Ashtead has announced an increase from 5.5p to 6.5p. In addition, currency factors have not necessarily worked in the group’s favour.

It may well be that Ashtead's fortunes remain largely welded to prospects in the US, yet the share price performance over the last year has not reaped the benefit of earlier economic success, having fallen 20%, as compared to a 10% drop in the wider FTSE 100

Even so, the general view of the company is rather more reflective of both performance and outlook, with the market consensus coming in at a 'strong buy'.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.

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