Equipment hire group Ashtead (AHT) bet big on North America with its Sunbelt business, and it is paying off. The group has been riding an analyst upgrade cycle since the second half of last year, and with profits for the three months to July 2018 ahead of expectations, consensus earnings forecasts have risen once again. The group reported underlying rental revenue growth of almost a fifth and a 23 per cent rise in pre-tax profits, with the latter 4.5 per cent ahead of consensus estimates.
US exposure has been a boon for the group, with last year's performance boosted by reconstruction efforts in the wake of hurricanes Harvey, Irma and Maria, which pushed up demand for its equipment. Even without the impact of these tragedies, President Trump’s self-appointed moniker of 'builder-in-chief' has widely been interpreted as positive for the US construction industry.
Sunbelt Canada also enjoyed a marked increase in revenue and operating profits, which almost tripled last year following a number of acquisitions. Those deals pushed cash profit margins down during the year to April 2018, but they recovered during the following three months to 36.8 per cent, up from 30.5 per cent.
Still, investors cannot afford to become complacent. Hire companies such as Ashtead must maintain large fleets of equipment to adequately meet customers needs, meaning their fixed cost base stays high when demand worsens. Utilisation rates remained as high as last year at 73 per cent.
