Ashtead defies bears with US performance

The crux of investor fears around Ashtead and its peers – VP (VP.), Speedy Hire (SDY) and HSS Hire (HSS) – comes down to operational gearing. Higher levels of operational gearing result in increased profits as a proportion of sales growth, but it's a double-edged sword.

Having enough equipment to loan out requires ongoing investments in storage and purchasing that can become a capital burden if demand stalls. However, this doesn’t appear to be happening at Ashtead. Average physical utilisation was steady on last year at 74 per cent, while rental revenues were up 17 per cent. Nevertheless, investment in the fleet, combined with weaker sterling, led to a £200m increase in net debt, although the overall level is equivalent to 1.8 times cash profits (Ebitda), still within management’s targeted multiple range of 1.5 to 2.0.

As before, the group’s strength in the US is a vital driver of the business. It continues to expand its footprint across the Atlantic, adding another 63 outlets during the period, so the US now generates 85 per cent of revenues. Management noted that while it once again saw a revenue boost from clean-up efforts following hurricanes, this year it amounted to a maximum of $20m (£15.9m) in additional sales, versus $40m-$45m last year.

The step-up in US capacity suggests that management isn't cowed by the broader market jitters. Instead, it cited a “strong market” and an opportunity to increase its market share as catalysts for an anticipated rise in full-year capital expenditure, now expected at £1.4-£1.6bn, from around £1.2bn in FY2018.

Peel Hunt upgraded its profit and EPS forecasts following the results. It now expects adjusted pre-tax profits of £1.1bn for the full year, giving EPS of 174p (from £927m and 127p in FY2018).