British industrial equipment rental company Ashtead Group (LON:AHT) has reiterated its full year outlook after third quarter profits rose 8%, bolstered by a weak pound and growth in its core North American market.
Profit before tax in the three months ended 31 January edged up to £178.7mln from £139.1mln a year earlier.
Rental revenue increased 14% to £729.2mln from £536.9mln, reflecting an increased fleet on rental equipment.
Ashtead invested £840mln in the rental fleet and a further £196mln on bolt-on acquisitions in the nine months to 31 January.
Sunbelt Rentals, the company’s North American construction and industrial equipment rental division, achieved a 9% increase in rental revenue to $2.7bn from $2.5bn
The UK business A-Plant, which supplies plant, tools and equipment for hire, recorde a 17% jump in rental revenue to £227mln from £193mln.
The company said its results were supported by a weaker pound following the UK’s vote to leave the European Union last June. Ashtead added that while Brexit is yet to impact the group’s results, it will continue to monitor developments in the UK business, which contributed 14% of group revenue and 10% of underlying pre-tax profit in 2015/16.
Ashtead said fluctuations in the pound against the dollar may continue to have a significant impact on results.
"Based on the current currency mix of our profits and on dollar debt levels, interest and exchange rates at 31 January 2017, a 1% change in the US dollar exchange rate would impact underlying pre-tax profit by approximately £7m."
The weaker pound, however, increased reported debt by £304mln. Net debt at the end of the January stood at £2.6bn, compared to £2.2bn the same month a year earlier.
In the US the group may stand to benefit from President Donald Trump’s plans to spend £800mln on infrastructure, though Ashtead made no mention of this in its quarterly results
The company is targeting double digit growth through to 2021 in the US, saying end markets remain supportive and it continues to benefit from ongoing structural change as customers increasingly rely on the flexibility of rental.
Ashtead chief executive Geoff Drabble said the company expects full year results to be in line with its expectations and continues to “look to the medium term with confidence”.
Shares fell 1.78% to 1,713.11p in morning trade.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "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."
Hyett added: "Wider economic tailwinds are also blowing in the group’s favour, such as the recovery in US shale. But there are few more direct plays on a Trump boom in the UK market, with the shares up 35% since election.”
-- Adds analyst comment, updates share price --