Interactive Investor

ii view: does Ashtead present a long-term opportunity?

Down from over £60 per share in 2023, we assess prospects for this FTSE 100 company with significant exposure to the US economy.

4th January 2024 15:44

Keith Bowman from interactive investor

First-half results to 31 October

  • Revenues up 16% to $5.57 billion 
  • Adjusted Earnings Per Share up 6% to $2.26
  • Interim dividend up 5% to 15.75 US cents
  • Share buybacks of $43 million, down from $207 million last year
  • Net debt of $10.6 billion, up from $8.4 billion

Chief executive Brendan Horgan said:

“We are executing well against all actionable components of our strategic growth plan, in end markets which remain robust. 

“We are in a position of strength, with the operational flexibility and financial capacity to capitalise on the opportunities arising from these market conditions and ongoing structural change.”

ii round-up:

Ashtead Group (LSE:AHT) is an equipment rental hire company which trades under the Sunbelt brand in the US, Canada and the UK.  

Employing over 26,000 people, Ashtead rents a full range of construction and industrial equipment across a wide variety of applications to a diverse customer base.

The USA operates most of its rental stores at over 1,150, with UK branches totalling 192 and Canadian outlets coming in at 129. 

For a round-up of these latest results announced on 5 December, please click here

ii view:

Founded in Ashtead, Surrey, this FTSE 100 company today rents out more than 1 million items to over 800,000 different customers. Its equipment to hire includes aerial platforms, air compressors, heaters, lighting, and water pumps. On a regional basis, the US generated most of its sales during its last full financial year at 85%, followed by the UK at just over 8%, and Canada the balance of around 6%. 

For investors, the frequency and strength of natural events such as hurricanes and wildfires, plus the volatile impact created on demand hire should not be overlooked. Events outside of management’s control such as strikes in a particular  sector warrant consideration. So do heightened borrowing costs given group net debt of over $10 billion. Finally, possible political change in the US and potential cuts in infrastructure spending given historically high US government debt, are worth bearing in mind. 

On the upside, film and TV strike action which had hindered Ashtead's performance is now over. Accompanying management outlook comments point to robust North American demand, with sales supported by the increasing number of mega projects and recent government legislative. Bolt-on acquisitions have helped it increase location diversity, particularly across the US, while the dividend payment has been increased for more than 15 consecutive years, leaving the shares offering a forecast dividend yield of around 1.5%. 

On balance, and while events outside of management’s control did affect performance during the second quarter, this well-managed company looks to remain worthy of ongoing long-term investor support. 

Positives: 

  • Product and customer diversity 
  • Progressive dividend payment 

Negatives:

  • Tough economic backdrop
  • High dependency on US business 

The average rating of stock market analysts:

Buy

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