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Ashtead profits from construction revival

The British tool hire company continues to defy expectations
September 8, 2014

What's new:

• First-quarter pre-tax profits rose 33 per cent

• Management is guiding up analysts' full-year forecasts

• US business rapidly taking market share

IC TIP: Buy at 1018p

Ashtead (AHT) has raised its full-year earnings guidance after strong demand in the US and UK saw its first-quarter profits jump by a third. The tool and construction rental group said in its first-quarter results that its rental revenues grew 22 per cent to £418m, while cash profits rose 30 per cent to £210 - a margin of 46 per cent.

The FTSE 100 company has capitalised on a strong recovery in commercial construction in the US, which accounts for about 90 per cent of its profits. This recovery continues to show signs of broadening out, with market growth running at about 8 per cent. But Ashtead is growing much faster than that: US same-store sales were up 17 per cent in the quarter, in part thanks to huge growth in national accounts. The group has been helped by internal turmoil at one of its main competitors, Hertz (US: HTZ), which has been trying to sell its own struggling equipment-hire arm.

Organic growth has been supplemented by the launch of new sites as well as bolt-on acquisitions. Between them these have added 58 locations over the past year, giving a revenue boost of $27m (£16m) and helping buoy the overall US growth rate to 21 per cent.

As a result of the positive momentum, Ashtead increased its plans for capital expenditure to a range of £825m to £875m.

Liberum says...

Buy. In spite of currency headwinds, Ashtead continues to outperform and capitalise on the non-residential recovery, with first-quarter profits about 7 per cent ahead of our expectations. Larger customers and the product mix limited pricing growth at the US business, but volume growth remained high, particularly in the established stores. The group's return on capital keeps improving, too. We have upgraded our profit forecast by 4 per cent, and now expect adjusted EPS of 56p for the year to March 2015. We forecast annual EPS growth of 18 per cent for the next three years.

Barclays says...

Buy. Ashtead has delivered another record quarter, with profits well ahead of our forecasts. The US and the UK both performed strongly in the period, with rental revenues up 22 per cent and 19 per cent, respectively. The outlook statement confirmed that the trend has continued into August, and management increased its capital expenditure guidance, which is unusual at this early stage of the year. We have upgraded our earnings per share forecasts for the 2015 and 2016 fiscal years by 5 per cent.