Interactive Investor

ii view: inflation hinders outlook at hire company Ashtead

14th June 2022 12:31

Keith Bowman from interactive investor

Shares for this major US operator are down by more than a third during 2022. We assess prospects. 

Full-year results to 30 April 

  • Total revenue up 19% to $7.96 billion 
  • Rental-only revenue up 22% to $7.24 billion 
  • Adjusted pre-tax profit up 38% to $1.82 billion
  • Final dividend of 67.5 US cents per share
  • Total dividend for the year up 38% to 80 cents per share 
  • Net debt up 23% to $7.16 billion

Chief executive Brendan Horgan said: Our business has demonstrated its ability over the last two years to perform in both good times and more challenging ones. The new financial year has started well and the business has clear momentum.

ii round-up:

Hire company Ashtead Group (LSE:AHT) today reported record results as demand for speciality equipment helped revenues rise by almost a fifth to $7.96 billion. 

Adjusted pre-tax profit of $1.82 billion, up 38% year-over-year, matched City forecasts, aiding a near 40% hike in the total dividend for the year to 80 US cents per share. However, an expected increase in capital expenditure for the year ahead to up to $3.6 billion from a previous $3.2 billion to $3.4 billion, partly the result of required property improvements and new equipment cost inflation, disappointed analysts. 

Ashtead shares fell by around 3% in UK trading having come into this latest update down by just over a third year-to-date. Shares for smaller UK and Irish rival Speedy Hire (LSE:SDY) are down by just over a quarter during 2022. The FTSE All-World index has fall by a fifth year-to-date. 

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. 

Management’s estimate of US rental revenue growth for the year ahead remained unchanged at up between 13% to 16%, while expected growth for Canada stands at between 15% to 18%. UK revenues are forecast to fall by up to 5% over the year ahead given the rollback of Covid testing sites.  

The FTSE 100-listed company spent $1.3 billion on 25 bolt-on acquisitions during the year to the end of April. The increase in capital expenditure over the year ahead is expected to leave group free cash flow at around $300 million. That’s below prior City estimates of around $615 million.  

Group net debt rose 23% year-over-year to $7.16 billion. 

ii view:

Ashtead employs more than 20,000 people across more than 1,100 outlets. Its biggest market remains the US. As such, it previously switched to report its results and dividend payments in US dollars. The UK and Canada make up the balance at around 10% and 6%, respectively. 

For investors, the hinderance of cost inflation on its outlook cannot be overlooked. The uncertain economic outlook for its key US market warrants firm consideration, as does the increase in group net debt, while supply chain issues remain a challenge for industry more generally. 

On the upside, US rental revenue growth of 26% in the fourth quarter was up from 25% in the third quarter, while accompanying management outlook comments offered some reassurance. A near 40% hike in the total dividend for the year also appears to suggest forward-looking confidence, while the dividend payment has grown consecutively for more than the last 10 years. In all, and while some caution appears sensible, a consensus analyst fair price estimate of around £60 per share looks to offer room for longer-term optimism.   

Positives: 

  • Continued bolt-on acquisitions 
  • Progressive dividend payment 

Negatives:

  • Clouded economic outlook
  • High dependency on US business 

The average rating of stock market analysts:

Buy

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