ii view: Ashtead remains in confident mood

A UK company that's doing all the heavy lifting in North America. 

Third-quarter results to the 31 January 2020

• Revenue up 11% to £1.25 billion
• Adjusted profit (EBITDA) up 10% to £584 million
• Share buyback scheme to remain ongoing into the next financial year
• Net debt up 46% to £5.4 billion

Chief executive Brendan Horgan said:

"We have enjoyed another quarter of industry-leading rental revenue growth. In North America our business continues to perform well in supportive end markets, while in the UK we have taken decisive strategic action to refocus the business in the challenging market conditions.  Although construction markets are moderating, we expect results to be in line with expectations and the Board continues to look to the medium term with confidence."

ii round-up:

Generating over 85% of its sales in the US, equipment hire company Ashtead Group (LSE:AHT) reported third-quarter results which matched analyst estimates. 

Employing over 18,000 people, Ashtead rents a full range of construction and industrial equipment across a wide variety of applications to a diverse customer base.

General tool sales growth in the US under its Sunbelt brands was posted across all of its 14 geographical regions. Low single digit growth in Florida and the Carolinas battled tough comparatives given previous post hurricane demand, while California, the Northeast and the Pacific Northwest all enjoyed double-digit gains. 

In the post results meeting, management stressed its outperformance against a flat US construction market. 

Elsewhere, Sunbelt Canada remained in a growth phase as it invests to expand its network while the focus in the UK under its A-Plant brand is now on operational efficiency and improving returns given a competitive market backdrop.

Just over £400 million (2019: £491 million) has been spent year-to-date on 17 bolt-on acquisitions as it continues to grow and diversify its specialty markets.

The share price was little changed in early afternoon UK market trading. 

ii view:

The group’s core US business continues to report broad progress, despite some slowing in growth given prior year boosts from hurricane related activity. Sunbelt US delivered 9% rental revenue growth in the third quarter compared to the nine-month trend of 13%.

Higher group debt following fleet investments, bolt-on acquisitions and the adoption of IFRS 16 has raised concerns for the impact any sustained US downturn could have. Nonetheless, free cash flow year-to date reached a record £363 million, with the group’s share buyback programme now being extended into the next financial year. 

For investors, while the current prospective dividend yield of just under 2% (not guaranteed) generates little excitement, a record of 13 years of consecutive dividend growth is commendable. In addition, both a strong record of operational execution and a forward price/earnings ratio comfortably below the three-year average, following a sharp decline since the coronavirus outbreak, offer further reasons for long-term optimism. 

Positives: 

• Market share in many US regions still has room to grow
• Shareholder returns remain a focus

Negatives:

• High dependency on US business 
• The UK market remains competitive – nine-month revenue fell by 1%

The average rating of stock market analysts:

Buy