FTSE 350: Mixed bag for business services

Take rental equipment company Ashtead (AHT), for instance. We suggested buying its shares in May 2014 on the back of 11 consecutive quarters of positive updates, as well as a rock-solid balance sheet - and the good news keeps coming. Indeed, last month's half-year results beat analysts' expectations after underlying pre-tax profit jumped a third - sending the shares 9 per cent higher on the day. This momentum looks set to continue into 2015, too, with the group continuing to plug geographic gaps at its US operation, which is benefiting from a revival in the construction sector.

Van hire group Northgate (NTG) tells a similar story. After enduring a rough ride during the recession, reflecting its exposure to the Spanish and UK construction sectors, the group has since been busy extending its UK coverage - it plans to open sites at 90 new locations by the end of 2016. As the UK's economic recovery continues to feed through, expect a brightening earnings outlook this year.

Berendsen (BRSN) looks set to benefit from economic recovery, too. The group, which rents out protective clothing, as well as selling washroom products, doormats and clean room clothing, delivered good underlying profit growth in the 11 months to end-November. Broker Peel Hunt expects full-year pre-tax profit of £139.9m - up 3 per cent on the previous year, despite currency headwinds. The broker also thinks there is potential for continued margin expansion and reckons "the risk to underlying estimates, ie at constant currency, over the next few years remains firmly on the upside, despite the macroeconomic slowdown in continental Europe".

Bunzl (BNZL), meanwhile, has reaped the rewards of expansion through an acquisition-led strategy. The group, which supplies products ranging from food packaging to disposable tableware, completed 14 acquisitions last year, with total annual revenues of around £160m. This included the acquisition of German hygiene and healthcare business Baumer and related company Protemo, as well as Canadian cleaning business Acme Supplies.

The group got off to a strong start on the acquisition front in 2015, too, with this month's £65m purchase of safety products company Blake H Brown. Broker Investec upgraded its full-year earnings forecast to 84p a share and expects 91.4p for 2015. The broker estimates that, based on historic annual spend, further acquisitions could add a further 5-6 per cent to growth. However, Bunzl's geographic spread leaves it particularly exposed to currency movements.

Currency headwinds are also a factor for Aggreko (AGK): the strong pound wiped £80m off reported revenue, and £23m from adjusted operating profit during the first-half of the year. Its 'local' business, which hires out equipment for clients to operate themselves, reported a healthy 10 per cent increase in underlying revenues to £431m. However its 'power projects' division, which sells electricity to governments and utilities, suffered as a result of a reduction in US military work in Afghanistan and in Japan, following the wind-down of post-tsunami operations there. This pushed down overall pre-tax profit at the half-year stage by 10 per cent to £130m.

Still, the group signed a two-year contract this month to provide an additional 150MW of diesel power to Argentina-based Energia Argentina SA, as well as a two-year extension to the additional capacity it provides. This customer also settled some outstanding debts, so the group now expects a "small increase in the 2014 full-year trading profit". Investec forecasts 2014 pre-tax profit of £291m, up from £284m, and EPS of 82.6p, up from 80.5p. Moreover, and after the shares hit a 52-week low in mid-December, they've since recovered 9 per cent.

Favourites

Ashtead's strong earnings momentum looks set to roll on this year as recovery continues at its core US and UK construction-focused operations. Investec has again upgraded its 2015 full-year earnings forecast, by 2 per cent to 60.6p a share and by 9 per cent for 2016 to 75.7p. The shares may be trading on 17 times 2015's expected earnings, which is slightly pricier than the ratings seen at some of its peers but, given the robust earnings outlook, we're buyers.

Outsiders

Homeserve's (HSV) growth has continued to be held back as a result of a mis-selling scandal at the domestic repairs insurer back in 2013. Indeed, its UK division - which accounts for three-quarters of operating profits - continued to lose customers during the first half of 2014. The shares trade on 17 times forward earnings, which looks expensive given the doubtful growth profile.