The future is hard to know. But we think it is probable that companies will take a far more cautious approach to capital management in the wake of Covid-19. For an industrial group like Ashtead (AHT), which is looking to deepen its footprint in an underserved US tool hire market, the transition to a capital-lite model may not seem feasible. But its fortunes are bound up with the health of the US economy, so it may have no other option than to trim its sails over the next couple of years – time will tell.
The group has already slashed its capex guidance to £500m, representing a third of the outlay in FY2020. Ashtead’s business model is structured to cope with the inherent cyclicity of its end markets, but management might have to take a belt and braces approach to costs until the fall in aggregate demand in the US becomes clearer.
Though overall volumes pulled back sharply in March and April, sales have been propped up by the designation of its Sunbelt Rentals arm as an essential business in the US, UK, and Canada. The group continues to support those areas vital to the social fabric, including first responders, hospitals, alternative care facilities, and telecommunications and utility companies.
Full-year sales were broadly in line with guidance, while adjusted profits at £1.06bn were ahead of expectations. Fourth quarter performance, though predictably dire, was also better than expected, but shareholders will take greater comfort in record free cash-flow generation of £792m, which underpinned the increased dividend pay-out.
The decision on the distribution is not only at odds with many listed peers, but the timing is also questionable given that net debt (ex-lease liabilities) increased by 13.5 per cent on the previous year. Ashtead forked out around £187m to meet its annual dividend commitments through to April, so the decision could be deemed imprudent given it has also suspended all M&A expenditure till further notice.
Peel Hunt today has raised its price target to 2,300p (from 1,800p).
| ASHTEAD (AHT) | ||||
| ORD PRICE: | 2,649p | MARKET VALUE: | £ 11.9bn | |
| TOUCH: | 2,644-2,650p | 12-MONTH HIGH: | 2,876p | LOW: 1,010p |
| DIVIDEND YIELD: | 1.5% | PE RATIO: | 16 | |
| NET ASSET VALUE: | 662p* | NET DEBT: | £5.36bn** | |
| Year to 30 Apr | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 2.55 | 0.62 | 81.3 | 22.50 |
| 2017 | 3.19 | 0.77 | 101 | 27.50 |
| 2018 | 3.71 | 0.86 | 195 | 33.00 |
| 2019 | 4.50 | 1.06 | 166 | 40.00 |
| 2020 | 5.05 | 0.98 | 162 | 40.65 |
| % change | +12 | -7 | -2 | +2 |
| Ex-div: | 13 Aug | |||
| Payment: | 11 Sep | |||
| *Includes intangible assets of £1.67bn, or 371p a share. **Includes lease liabilies of £1.1bn | ||||
