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Ashtead Group

Ashtead drops despite playing down US construction worries

Net debt swelled to £5.2bn from £3.8bn during the quarter to end-July

Ashtead Group -

Ashtead Group PLC (LON:AHT) allayed worries about slowing US growth hitting its construction rental business but was still the biggest faller among London’s blue chips on Tuesday.

Recent trends had shown shrinking US construction spending, which some analysts had worried would put pricing and profits under pressure, the FTSE 100 group reported improved margins in the US and Canada for its first quarter ended 31 July.

While group revenue up 17% to £1.3bn, statutory profit before tax was up only 8% to £304.7mln, the slowest rate of improvement since the spring of 2017.

Earnings per share rose 12% to 49.1p as £125mln was spent on share buybacks.

Sunbelt, the North American business that contributes almost 90% of group earnings, grew organic rental revenues of 12%, which was at the upper end of 9-12% guidance for the full year, but slower than the 15% in the second half of last year. US profit margins were also expanding.

The smaller UK business, A-Plant, reported narrower margins as revenues declined 1% in the face of a more competitive landscape for rental rates and a flatter market.

'Strong' message

“Our North American end markets remain strong and we continue to execute well on our strategy of organic growth supplemented by targeted bolt-on acquisitions,” said chief executive Brendan Horgan, who took the helm from Geoff Drabble in May.

He said the investment in the period reflected the structural growth opportunity that the board continue to see in the business from broadening the product offering, geographic reach and end-markets.

“Our business continues to perform well in supportive end markets. Accordingly we expect business performance in line with our expectations,” Horgan added.

Net debt increased to £5.2bn from £3.8bn during the three months as £196mln was spent on bolt-on acquisitions, £521mln was invested in the hire fleet, the adoption of IFRS 16 accounting rules added £883mln to debt and weaker sterling increased reported debt by £291mln.

With underlying earnings [EBITDA] reported at £626.6mln, the ratio of net debt to EBITDA was 2.1 times, which is within management’s target range of 1.9 to 2.4 times following.

Shares give back some gains

The shares, having recovered well from the sell-off a year ago, were down more than 2% to 2,233p by midday on Tuesday.

Broker Liberum said the stock is "still cheap so long as the US cycle continues to extend".

Russ Mould at AJ Bell said the trading update "did confirm the impression that momentum is easing and profits also showed a deceleration in growth", with the year-on-year revenue increase of 8% the slowest since early 2017.

"Given the gathering fears over an economic slowdown it is intriguing to see how Ashtead’s shares moved higher this summer even as lead indicators for manufacturing activity such as the purchasing managers’ indices softened," he said.

But Mould conceded that a 12% increase in capital investment in new kit “is not the profile of a firm that is seeing a slowdown in demand for its equipment or services”.

-- Adds shares price and broker comment --

Quick facts: Ashtead Group

Price: £22.75

Market: LSE
Market Cap: £10.47 billion
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