- Annual revenue up 51 per cent to £110mn
- Adjusted pre-tax profit and EPS up 73 per cent to £33mn and 33p, respectively
- Return on capital employed up from 21.2 to 27.6 per cent
Leading subsea rentals and services group Ashtead Technology (AT.:806p) has delivered yet another set of eye-catching results that exceeded previously upgraded earnings guidance. The independent company supports the installation, inspection, maintenance and repair (IMR) and decommissioning of infrastructure across the offshore energy industry.
Increased activity offshore and the emergence of the energy trilemma, a three-way push-pull of energy security, affordability and sustainability, are clearly benefiting Ashtead, as highlighted by the 35 per cent growth in organic revenue. Furthermore, it’s increasingly profitable business, a reflection of the structural shift in demand for renting equipment that is not only supporting a growing and longer-duration order book, but improved pricing and higher cost utilisation, too.
Indeed, gross profit margins increased by almost four percentage points to 78 per cent, which on sharply higher revenue meant that the £32mn incremental gross profit earned comfortably exceeded the £18.7mn increase in operating expenses. This explains the dramatic improvement in pre-tax profit.
Importantly, the market outlook remains incredibly favourable both for the offshore wind market, the fastest-growing segment, which Rystad Energy forecasts will deliver 25 per cent compound annual growth (CAGR) from 2023 to 2027, but also for the oil and gas industry (7 per cent CAGR forecast) given the need for a balanced energy transition. The order backlogs of offshore contractors have doubled since 2020, highlighting the increasing demand for Ashtead’s services for years to come.
Sensibly, the organic growth is being complemented by some well-timed bolt-on deals, the latest being the £53.5mn acquisition of Ace Winches, a market leader in the design, assembly and rental of lifting, pulling and deployment solutions. It was the group’s eighth acquisition in the past six years and contributed one month of earnings in 2023. Factoring in robust ongoing organic growth and a full 12-month contribution from Ace Winches, analysts at Numis expect current-year adjusted pre-tax profit to rise by 20 per cent to £39.7mn to produce earnings per share of 36.5p. On this basis, the shares are rated on a prospective price/earnings (PE) ratio of 22, a multiple that drops to 19.1 (2025) and 17.4 (2026).
Trading at a record high, the shares have more than trebled in value since I initiated coverage at 257p (‘Alpha Research: Profit from the great energy reset’, 9 September 2022), and have risen 42 per cent since I last reiterated that buy call (‘Ashtead’s earnings cycle steps up a gear’, 30 November 2023). I suspect that the earnings upgrade cycle has some way to run, so run your profits. Hold.
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