ii view: hire company Ashtead breaks records

Taking market share and lifting full-year forecasts. We assess prospects for this FTSE 100 company. 

First-half results to 31 October

• Total revenue up 18% to $3.88 billion 
• Rental only revenue up 20% to $3.54 billion 
• Adjusted pre-tax profit up 42% to $979 million
• Net debt up 6% to $6.43 billion
• Interim dividend up 28% to 12.5 US cents per share

Chief executive Brendan Horgan said:

“Our business has strong momentum in supportive markets.  The benefit we derive from the diversity of our products, services and end markets, our investment in technology and ongoing structural change, enhanced by the environmental and social aspects of ESG, enables the Board to look to the future with confidence.”

ii round-up:

Equipment hire company Ashtead Group (LSE:AHT) today delivered a record first-half performance, enabling it to raise full-year forecasts again.  

Rental revenue growth is up on both last year and the pre-pandemic first-half of 2019, aided by a further 58 North American outlets and a capital spend of $1.2 billion. Expected annual rental growth is now tipped to come in at 17-20% from previous expectations of 13-16%.

Ashtead shares rallied by around 3% in early UK trading, bringing their gain over the last year to about double. Shares for smaller UK and Irish rival Speedy Hire (LSE:SDY) are down by around 6% over that time.

Under its Sunbelt brand, Ashtead rents out a full range of construction and industrial equipment across a wide variety of applications to a diverse customer base. 

US rental revenue climbed 16% to $2.34 billion in the six months to the end of October or by 9% compared to the first half of the pre-pandemic 2019. The US accounts for around four-fifths of overall group sales. US store outlets grew to more than 900 from a year ago total of 840. 

Rental sales for its smaller Canadian business rose 47% to $184 million, while sales in the UK climbed 18% to $270 million. A total of $428 million was spent on bolt-on acquisitions, with a further $320 million spent during the current third quarter. 

The interim dividend was hiked by 28% to 12.5 US cents per share.  

ii view:

Ashtead employs over 20,000 people across more than 1,100 outlets. That’s up from 14,000 staff and just over 800 outlets back in 2017. Its biggest market remains the USA. As such, it has now switched to report its results and dividend payments in US dollars from the UK pound. The UK and Canada make up the balance of its sales at around a tenth each. 

For investors, outlook uncertainty regarding the pandemic cannot be completely dismissed. A 2% fall in adjusted pre-tax profit during it financial year to the end of April 2021 is a reminder that Ashtead is vulnerable to operating disruption. Like companies more broadly, it is also battling both inflationary pressures and supply chain challenges.  

However, rental penetration remains lower in its key US market than elsewhere, suggesting room for growth. Ashtead also continues to take market share, and planned infrastructure spending by the US government should help underpin prospects. Although modest, the dividend payment has grown consecutively for the last 15 years. For now, and with growth in its core US market ongoing, long-term support for the shares appears to remain deserved. 

Positives: 

• Taking US market share
• Progressive dividend payment 

Negatives:

• Covid clouded outlook
• High dependency on US business 

The average rating of stock market analysts:

Buy