Liberum initiates Ashtead at 'buy'
Liberum initiated coverage of equipment rental company Ashtead at ‘buy’ with a 1,940p price target, saying the upside potential from increased rental penetration in the US market is yet to be fully reflected in the share price.
Ashtead Group
5,558.00p
16:40 19/04/24
FTSE 100
7,895.85
16:59 19/04/24
FTSE 350
4,341.08
17:09 19/04/24
FTSE All-Share
4,296.41
17:08 19/04/24
Support Services
10,465.25
17:10 19/04/24
The brokerage said its detailed analysis of management’s medium-term growth plan, ‘Project 2021’, suggests that it is well placed to deliver 9% per annum underlying revenue growth and further improve its sector leading margin.
“Our detailed analysis of this plan leaves us to believe that it is well placed to deliver on its targeted 875 stores by 2021 via a healthy combination of organic growth and bolt-on acquisitions. With the maturation of its existing footprint augmenting growth from new locations, we forecast local currency revenue growth of 9% p.a. over the FY16-20 period.”
With this growth funded internally, Liberum expects the leverage to reach just 1.3x in FY19, providing management with significant optionality to further accrete shareholder value.
The brokerage also pointed to the fact that government policy in the US is supportive of higher levels of infrastructure investment, saying that a it phase of fiscal expansion could provide an important source of momentum for the rental industry.
“This combined with potential changes in the corporate tax system in the US suggests that changes in government policy could be supportive for Ashtead in the short and medium term.”
Having said this, Liberum made it clear that its investment case is not dependent on any of these proposals and would see their enactment as “nice to have” rather than central to the investment case.
At 1300 BST, the shares were up 3.2% to 1,690p.