The market always expects good numbers from Ashtead, but we shouldn’t overlook the fact that the company is growing its top line by close to 20% and its bottom line by over 30%, buying back shares and raising its dividend, all for just 10 times this year’s earnings.
Total revenues for the year to 30 April are up 19% to £4.5bn with rental revenues up 18% to £4.1bn. Growth in the US, where the company owns the Sunbelt brand, is being driven mostly by organic same-store sales with a small contribution from bolt-on acquisitions.
In the last year Ashtead has invested £1.6bn in new plant and equipment for rental and £622m in bolt-on acquisitions to expand its site network.
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The company maintains that its strategy is one of ‘responsible growth’ and that the scale of its investment ‘reflects the structural growth opportunity that we continue to see in the business as we broaden our product offering, geographic reach and end markets’.
Despite its increasing size and reach, operating margins have been maintained with group earnings before interest, tax, depreciation and amortisation (EBITDA) hitting £2.1bn last year, equivalent to a margin of 51%.
Even after investing heavily in the business, there is sufficient free cash flow to buy back shares and increase shareholder returns. Having spent £675m under its previous buyback programme announced in 2017, Ashtead will spend at least £500m buying back its shares this year and next year.
Total dividends for the year are up 21% to 40p, which is not only above market estimates of 38p but means Ashtead has increased its pay-out for 14 years in a row, putting it amongst a very select group of FTSE companies.