ii view: UK’s Ashtead profiting from US mega projects

First-quarter trading update to 31 July

• Rental revenues up 7% to $2.54 billion
• Adjusted pre-tax profit down 7% to $573 million
• Net debt of $10.76 billion, up from $9.68 billion

Guidance:

• Continues to expect rental revenues for the full-year to grow by between 5% and 8%
• Continues to expect capital expenditure of $3-3.3 billion

Chief executive Brendan Horgan said:

“The Group is performing well with rental revenue up 7% and revenue up 2% in the first quarter. In North America, the increasing proportion of mega projects and the strength of our Specialty businesses has more than offset the lower activity levels in local commercial construction markets. As expected, lower used equipment sales and a higher increase in depreciation and interest costs, resulted in adjusted profit before taxation of $573m (2023: $615m).

 “We are in a position of strength, with the operational flexibility and financial capacity to capitalise on the structural growth opportunities we see for the business. We have started the year well and expect full-year results will be in line with our expectations. The Board looks to the future with confidence."

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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 25,700 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 1,215, with UK branches totalling 190 and Canadian outlets coming in at 138. 

For a round-up of these latest results announced on 3 September, please click here. 

ii view:

Started in Ashtead, Surrey, the group today rents out more than 1 million items of equipment to over 900,000 different customers. Its equipment to hire includes aerial platforms, air compressors, heaters, lighting, water pumps and crowd control barriers. Geographically, the US generated its biggest chunk of profit during its last financial year to late April at 94%, followed by Canada at 3.5% and the UK 2.5%. 

Management’s latest strategic growth plan (Sunbelt 4), launched in April, focuses on areas such as expanding customer numbers, improving group performance, pushing sustainability and executing investment. 

For investors, the frequency and strength of natural events such as hurricanes and wildfires and the volatile impact created on demand hire cannot be overlooked. Events outside of management’s control such as customer bankruptcies and strikes warrant consideration. So do high borrowing costs given group net debt is over $10.5 billion. Finally, a potential change of the US government and possible cuts in infrastructure spending given historically high US government debt, are also worth thinking about. 

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More favourably, a stabilisation in performance may have been achieved, with guidance this latest quarter remaining unchanged, and US mega projects continue to support demand. Bolt-on acquisitions remain ongoing with 26 totalling $905 million made over its last financial year, while the dividend payment has increased for more than 15 consecutive years, leaving the shares on a forecast dividend yield of around 1.5%. 

For now, and while a potential change of US government could be reason for caution, investors are likely to be pleased with performance of this well-managed company, with a consensus analyst fair value estimate above £60 per share.

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