Equipment rental firm Ashtead (AHT), one of this year’s high-fliers, saw its shares drop 8% to £21.79 after it warned that ‘challenging market conditions’ meant its UK division was performing below expectations.

Before today’s interim results Ashtead shares had gained 44% making them one of the best performers in the FTSE 100. Today they are the worst performer by some distance.

NORTH AMERICA ON TRACK

Ashtead’s North American markets remained strong in the six months to the end of October and the firm ‘continued to execute well on our strategy of organic growth supplemented by targeted bolt-on acquisitions’ according to chief executive Brendan Horgan.

The Sunbelt rental business, which makes up the bulk of Ashtead’s turnover, racked up a 15% increase in US revenues to $2.89bn and a 20% increase in revenues in Canada to C$200m.

Meanwhile operating profits for the US unit rose 12% to $947m and the Canadian unit grew profits by 11% to C$40.4m.

However the firm cautioned that it faced ‘currency headwinds’ as the pound has strengthened against the dollar in the last two months meaning overseas revenues and earnings are worth less when translated back into sterling.

FOCUS ON IMPROVING UK RETURNS

After what it called ‘a period of sustained growth’, Ashtead’s UK A-Plant business is now proving to be a drag on the group’s returns.

Rental-only revenue was down 2% in the first half to £187m due to a reduction in fleet on rent and a competitive pricing environment. Total revenues were up 2% to £256m thanks to increased sales of under-utilised and low-yielding assets, but this is obviously not a substitute for organic growth.

Return on investment at A-Plant was just 7% in the first half compared with 10% last year and an impressive 23% at the US Sunbelt division. Ashtead says it is now focusing on ‘operational efficiency and improving returns’ in the UK, but judging by today's results it has its work cut out.

READ MORE ON ASHTEAD HERE

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Issue Date: 10 Dec 2019