ii view: North America lifts Ashtead

Rental equipment group Ashtead is still confident about the future, but the UK proves a drag.

First-quarter results to 31 July 2019

• Revenue up 17% to £1.28 billion
• Profit before tax up 8% to £304.7 million
• Earnings per share up 12% to 49.1p

Chief executive Brendan Horgan said:

"Our North American end markets remain strong and we continue to execute well on our strategy of organic growth supplemented by targeted bolt-on acquisitions.  We remain focused on responsible growth.  Our increasing scale and strong margins are delivering good earnings growth and significant free cash flow generation. 

"Our business continues to perform well in supportive end markets.  Accordingly, we expect business performance in line with our expectations and the board continues to look to the medium term with confidence."

ii round-up:

Ashtead Group (LSE:AHT) is an equipment rental company which trades under the Sunbelt brand in North America and A-Plant in the UK.  

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.

The USA generates the clear majority of group sales at around 85%, followed by the UK and then Canada. 

First-quarter results proved to be broadly in line with analyst estimates. 

Growth for its core US business again led the way, supplemented by the Canadian division, with revenue gains of 18% and 26% respectively. Strong end markets and bolt-on acquisitions, adding 27 locations, helped drive performance. 

In contrast, a competitive UK market caused a 1% decline in revenues for its A-Plant division. A focus on operational efficiency and improving returns is now being pursued. 

The share price retreated around 2% in early UK stock market trading. 

ii view:

Progress for Ashtead's core North America business continues to be weighed against concerns about a possible US economic slowdown. The US Commerce Department recently reported a 1.3% drop in construction spending during June, the biggest decline in seven months. A preference to hire rather than buy, and the group's push towards offering increasingly specialist equipment, may for now be insulating performance. 

For investors, while the current prospective dividend yield of around 2%  generates relatively little excitement, management confidence in the outlook and a forward price/earnings (PE) ratio below the three-year average potentially provide encouragement.  

Positives: 

• Sales in its key US market rose 18%
• Shareholder returns remain a focus - £500 million share buyback programme

Negatives:

• High dependency on US business 
• The UK market remains competitive – EBITDA (underlying cash profit) margin fell 5% to 33%

The average rating of stock market analysts:

Strong buy