Date: Monday 11 Jun 2012
Jefferies has reiterated its buy rating and 300p target price for FTSE 250 rental equipment firm Ashtead ahead of its full-year results next week, saying it sees upside risk to current-year forecasts.
The broker is expecting Ashtead to report a pre-tax profit of £121.1m for the year ended March 31st 2012, based on the fourth-quarter assumptions of US rental revenue growth of 13% year-on-year. "Given sector peer United Rentals reported April 2012 rental revenues up 19.2% year-on-year, we believe these Ashtead 4Q12 assumptions are conservatively set," analysts said.
"We see upside risk to FY13 forecasts from 1) ongoing structural shift to increased rental & less equipment ownership in North America 2) Pricing recovery in rental rates and 3) Ashtead gaining market share from smaller, more financially constrained peers."
The broker said its current forecasts for the year ending March 2013 are based on EBITDA (earnings before interest, tax, depreciation and amortisation) margins of 34.4%, rising to 36.0% in 2014. However, it said that if Ashtead could improve these to 38% (the previous peak seen in 2008) with pricing back at peak levels, then this would equate to a pre-tax profit of £245m in the year ending 2014, some 44% above the base case forecast.
The stock is trading at 13.3 times 2013 earnings, Jefferies said.
Shares were trading 2.02% higher at 242.8p in mid-morning trade.
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