Ashtead remains equipped for strong year of growth
Third-quarter results from Ashtead revealed the industrial equipment hire group remained en route to a strong year of growth, with gross capital expenditure expected towards the upper end of its our previous guidance
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Underlying rental revenue from US-based Sunbelt and UK-based A-Plant for the third quarter ended 31 January grew 14%, the same as the second quarter, and so for the first nine months of the year was up 13% at constant exchange rates to £2.17bn.
At the reported level, rental revenue from the excavators, lifting machines and various other machines and tools its hires out on short-term contracts increased 30% for the nine months of the year so far, thanks in part to a £82m benefit from weaker sterling.
Sunbelt benefited from a rebound in private construction, which enabled it to outperforming peers like United Rentals that have more exposure to the oil and gas sector.
Operating profits growth remained at 9% for the quarter and for the year to £604.6m, although earning per share slowed moderately to 8% growth from 9% in the second quarter.
For the nine months so far, EPS is up 9% to 79.0p.
After three quarter, £812m of capital invested in the business and for the full year gross capital expenditure should hit £1.2bn at current exchange rates, with £196m also invested via bolt-on acquisitions.
"The underlying performance of the business continues to benefit from a clear and consistent strategy of organic growth supplemented by bolt-on acquisitions," said chief executive Geoff Drabble.
He added: "Our end markets remain supportive and we continue to benefit from ongoing structural change as our customers increasingly rely on the flexibility of rental."
As part of the US growth plan for the next five year, he said good progress had been made adding new stores, with 58 added in the nine months through greenfields and bolt-on acquisitions, almost half of which were specialty locations.
Over the medium term, analysts and investors foresee the performance of US-based Sunbelt being supported by President Donald Trump's pledges of significant investment in infrastructure, which underpin management’s 2021 growth plan.
In addition, the mooted reduction in corporate tax rates would also be a positive for the US operations.
Over the nine months, weaker sterling has increased reported debt by £304m to a net £2.59bn, though in December the senior credit facility was expanded to $3.1bn.
The ratio of net debt to EBITDA reduced to 1.7 times on a constant currency basis, which is in the middle of the group's target range for net debt to EBITDA of 1.5 to 2 times.
Reaction and analysis
The shares fell sharply to 1,640p in early trading, having touched a record high of 1,764p last week as investors increasingly latched onto the possible impact of the the 'Trump trade' on the company, but by 1000 GMT were down 2.8% on the day at 1,695.78p.
The shares were down as Ashtead looked to have lowered its 2017 earnings expectations, said analyst Mike van Dulken at Accendo Markets.
Nicholas Hyett at Hargreaves Lansdown noted that, with 87% of revenues generated in the US, few other stocks in the UK market have benefitted as much from the Trump effect as Ashtead.
"A stronger dollar, fueled by the prospect of higher US interest rates, and President Trump’s planned infrastructure spending splurge have boosted both the value of current revenues and the potential for future earnings.
"The group is targeting double digit growth out to 2021, and is making a significant number of bolt-on acquisition to make that happen. That’s seeing debt rise - something which has historically proven risky, leaving the group dangerously over leveraged when rental earnings evaporated. However, the rapid growth in revenues means that for now at least these debts are falling in relative terms."