ii view: US mega projects drive hire group Ashtead above forecasts

First-quarter update to 31 July

• Revenue up 19% to $2.69 billion (£2.15 billion)
• Adjusted pre-tax profit up 11% to $615 million (£492 million??)
• Net debt up 25% to $9.68 billion (£7.74 billion)

Guidance:

• Full-year ahead guidance unchanged

Chief executive Brendan Horgan said:

“We are executing well against all actionable components of our strategic growth plan, in end markets which remain robust. In the quarter, we invested $1.1 billion in capital across existing locations and greenfields and $361 million on nine bolt-on acquisitions, adding a combined 40 locations in North America. 

“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. Despite UK market conditions softening, we expect overall performance to be in line with our expectations and the Board looks to the future with confidence."

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ii round-up:

Rental company Ashtead Group (LSE:AHT) today detailed sales and profits ahead of City forecasts, with continued robust trading for its core US business more than countering hinderances at its much smaller Canadian and UK divisions.

Continued mega projects and supportive government legislation in the USA offset both strike actions impeding film production and hire in Canada, and tough UK comparatives given last year’s work for the Department of Health.  

Shares fell 1% in UK trading having come into this latest news up by close to a fifth year-to-date. Shares in UK focused Speedy Hire (LSE:SDY) are down by a similar amount in 2023, while the FTSE 100 index itself is up less than 1%. 

Ashtead, which trades under the Sunbelt brand, rents a full range of construction and industrial equipment with over four-fifths of its sales coming from the US. 

Total group sales during this first quarter to the end of July climbed 19% to $2.69 billion, pushing adjusted profit up 11% to $615 million, beating analyst estimates of $596 million. 

US sales rose 22% to $2.3 billion, aided by higher levels of used equipment sales given improved fleet deliveries and strong second-hand markets, vastly overshadowing a 2% fall in UK revenue to £178 million. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, with the company still one of its top picks.

Second-quarter results are scheduled for 5 December. 

ii view:

Started in the village of Ashtead in Surrey in 1947, the company today rents out more than 900,000 items to over 800,000 different customers. It hires out aerial platforms, air compressors, heaters, and forklift trucks among other things. With the US accounting for around 85% of its sales, it previously switched to reporting its results and dividend payments in US dollars from UK pounds. The UK and Canada account for around 8% and 6% respectively. 

For investors, increased borrowing costs and the relationship between interest rates, property prices and construction activity should not be overlooked. Group net debt and financing costs have risen, costs generally for businesses remain elevated, while a price-to-net asset value above the three-year average may also suggest the shares are not obviously cheap.   

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On the upside, mega projects and government initiatives in the US have helped it deliver another record quarter. Bolt-on acquisitions continue to help increase its location diversity, improved supply chains following the pandemic have allowed increased equipment sales, while the dividend payment has increased more than 15 years in a row. 

In all, and while some caution remains sensible, an analyst consensus estimate of fair value at over £64 per share points towards continued optimism in the City. 

Positives: 

• Ongoing bolt-on acquisitions 
• Progressive dividend payment 

Negatives:

• Tough economic backdrop
• High dependency on US business 

The average rating of stock market analysts:

Buy