Ashtead surprises City again

Rental revenue at its core US division Sunbelt jumped by a fifth last year to almost $2bn (£1.2bn) - four years ago it was barely $1bn - as the size of the fleet rented out rose 17 per cent and yield improved by 4 per cent. Since 2011, the cash profit margin is up 13 percentage points, return on investment has doubled to over 26 per cent, and the fleet size has grown by two-thirds to $3.6bn. With 65 per cent of revenue dropping through to cash profits, the margin hit a record 45 per cent and operating profit grew 39 per cent to $631m.

Servicing well-heads is driving oil and gas revenue, and a recovery in construction activity is also under way. "We're early in the cycle and we're a late-cycle business," explains Ashtead chief Geoff Drabble. "We have four to five years of steady growth ahead." Investing heavily at this point is crucial. Sunbelt has been growing market share - now at 6 per cent - but fully expects to double that in time.

Ashtead spent £741m last year expanding its rental fleet, and will do the same this year. Once growth moderates, it will curb spending and let the young fleet gently age, during which time free cash flow will turn positive. Ashtead also splashed out £103m on bolt-on acquisitions, and expects to open another 50 locations over the next 12 months. Indeed, incremental revenue from further purchases and so-called greenfield sites could double this year to $275m-$325m. By 2018, the target is $500m-$600m.