Equipment rental specialist Ashtead (AHT) topped the FTSE 100 leaderboard on Tuesday with a 4% advance to £21.

Its US division Sunbelt, from which it gains the vast majority of its profits, has been well positioned to win work associated the clean up following hurricanes Harvey and Irma.

Rory McKenzie analyst at investment UBS says shares in the company had appreciated significantly since the hurricanes hit. So why the uptick following the company’s half year to 31 October results given the strong performance appeared to have been priced in?

A generous share buyback scheme looks to have caught the market’s attention. The company has announced it will buy back at least £500m and up to £1bn worth of shares in the next 18 months. This represents between 5% to 10% of total shares outstanding.

BACK TO THE NUMBERS

While it doesn’t take a genius to realise that a company that rents equipment that lifts, powers, generates or moves would do well in after a major disaster, Ashtead’s results still came in above consensus predictions. Its pre-tax profits of £537m for the first half is 1% ahead of market forecasts between £510m and £515m.

Given the strong performance, Ashtead now sees its full year 2018 performance beating its previous expectations and has also lifted its capex guidance to £1.3bn from £0.9bn to £1.2bn.

The company has also benefitted from recent US tax rule changes, seeing scope for an effective tax rate of 23% to 25% by 2020. This compares to the current 34% to 35% and UBS says it could translate into a 15% increase in earnings per share.

Using UBS’s forecasts, Ashtead trades on 17.1 times 2018’s 122.7p of earnings with a dividend yield of 1.4%. This could prove too rich as McKenzie warns some of the temporary hurricane-related benefit is now fading.


Issue Date: 12 Dec 2017