Ashtead raises guidance after bumper half

Ashtead (AHT) has enjoyed an excellent start to the year. The equipment rental company, which trades under the name Sunbelt Rentals, has raised its full year guidance after first half operating profits shot up by over a third and group revenue neared $3.9bn (£2.9bn).

The bulk of Ashtead’s earnings now come from the US, where it has more than 900 stores. As a result, the group has changed its presentational currency from sterling to the greenback to allow for “greater transparency” and to reduce exchange rate volatility. As such, rental-only revenue in the US rose by 16 per cent to $2.3bn, while its general tool business grew by 13 per cent from the depressed activity levels the previous year. 

The UK business also reported strong growth, with revenue rising by 35 per cent to £368m. But future months could prove less buoyant as a third of this revenue stemmed from the Department of Health's Covid response efforts. Ashtead is supporting around 500 testing sites at the moment, but its workload is expected to “reduce significantly” in spring 2022.

The group has no plans to shrink, however. During lockdown, Ashtead shrewdly reduced its operating costs and eliminated discretionary spending in all its markets. This resulted in a stronger balance sheet, putting the group in a good position to grow as demand ratchets up. Now, the money tap has been turned firmly back on. Gross capital expenditure for the first half was $1.18bn, up from $438m in 2020, and the company has added a total of 58 locations across North America.

Ashtead also invested $428m in 10 bolt-on acquisitions in the period, a bid to expand its footprint and diversify its end markets. Impressively its ratio of net debt to Ebitda has fallen to 1.5 times on a constant currency basis, down from 1.7 times in 2020, though this is likely to have ticked up since October, given a further $320m has been spent on small deals.

Ashtead’s expansion plans could well pay off. The US market is still fragmented and relatively untapped, with many smaller independent operators for Ashtead to acquire.

Peel Hunt has increased its pre-tax profit estimate for FY2022 from $1.73bn to $1.78bn, boosting EPS from 288¢ to 296¢. For its own part, Ashtead  expects group rental revenue to increase by 18-20 per cent year-on-year, up from 13-16 per cent. Buy.

Last IC View: Buy, 3,757p, 4 February 2021