Construction and industrial equipment rental firm Ashtead (AHT) sees its shares climb 3% to £16.60 as it delivers strong first half results and raises profit guidance for the second time in three months.
Rental revenues in the six months to the end of October are up 18% to £1.77bn, driving pre-tax profits up 19% to £537m and earnings per share up a staggering 42% to 98.8p.
Thanks to strong cash generation the company has been able to invest over £1bn in new plant and equipment and a further £360m in small bolt-on acquisitions.
Even with this investment and the ongoing share buyback, the firm’s leverage is still well within its target range of 1.5 to 2.0- times net debt to earnings before interest, taxation, depreciation and amortisation (EBITDA).
US AND CANADA GROWING, UK STUCK IN A RUT
The main driver continues to be the Sunbelt rental business in the US which increased sales and operating profits by 20% in US Dollars and achieved an operating profit margin of 34% of sales.
However, the Canadian operations are making an increasingly valuable contribution with sales up over 80% in Canadian Dollars due to higher demand and acquisitions and a 22% operating margin.
The only weak spot is the UK where revenues at A Plant were up 2% to £250m but operating profits were down 6% to £44m. That implies profit margins of 17.6%, about 1% down on a year ago as competition in the rental market pushes down returns.
ANOTHER INCREASE IN FULL-YEAR FORECASTS
Growth in US construction spending continues to outstrip that of the overall economy thanks to a strong non-residential market where investment in transportation, hotels, schools and office buildings is growing at three to four times the rate of GDP.
Supported by this positive backdrop and the company’s ability to continue growing market share, helped by acquisitions, the board sees the full year results beating its previous expectations.
Given that the company raised forecasts for the full year when it released the first quarter results in September this makes today’s board announcement the second increase in guidance in three months.
With the shares down 17% since the start of the year, and 32% lower since early October, it was imperative that the company provided investors with some positive news. It appears to have, by and large, done that that today.
Ashtead is a running Shares Great Idea.
