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Share tip of the week

Each week, our analysts put the spotlight on a company from our list of recommended shares to buy. As always, it's recommended as a medium/long term investment (approximately 18 to 36 months). This week's share tip of the week is...

Ashtead (AHT)

  Company Sector Current price

  Ashtead (AHT) Support Services  1994.50 c  -0.62%    Growth Medium  Buy
 Analysis last updated on 16/03/18 at 1987p Recommended stop loss of 15%

View charts, and further company data

Company overview

International equipment group that provides a range of equipment for rental, which is used by a number of industries, most notably construction. Its main operations are in the US, along with the UK.

Our view

Interim results in December brought several bits of good news for investors, most notably a £1bn share buyback. Revenues rose 22% in the period to £945.2m with pre-tax profits up 24% to £298.4m. Participating in the hurricane clean-up in the Caribbean and weakness in sterling both helped the business. The company raised its forecasts for full-year results, but said it expected activity levels to return to more normal levels in the second half.

A third quarter update in March showed rental revenue up 24% to £845.5m at constant exchange rates with pre-tax profits rising 26% to £205.1m. Full-year guidance was left unchanged, which disappointed some investors. With its end markets remaining strong the company said it was still investing quite heavily in equipment.

The shares have performed well over the past year but fell back a little on this news. They trade on a 2019 price/earnings ratio of 13.1 times, which is average against peers like US group United Rentals. The prospective dividend yield of 1.8% is below average. Ashtead has only a 7% share of the market in the US and is targeting 15% through both organic growth and acquisitions.

We are recommending Ashtead as a 'Buy' due to the strong earnings momentum it has developed, the potential for further improvement in cash flow and continued growth in the US construction sector.

Bullish points

  • Trading has been improving steadily over the last four years and is forecast to continue thanks to growth in infrastructure spending and good underlying economic growth in the US and UK. The new Trump administration may further boost spending on infrastructure projects in the US.
  • US division, Sunbelt, has continued to be the main source of growth. The long term rebuild following major natural weather events like hurricanes can also increase demand for the company's equipment.
  • The group has been investing heavily in its hire equipment in the US, both upgrading existing assets and buying new ones, to help meet demand.
  • Stronger balance sheet than in the past. Company says it expects several years of good earnings growth and strong cashflow which has enabled a £1bn share buyback programme.

Bearish points

  • Debt levels have been rising due to investment in equipment and acquisitions which could become a problem if sales growth falters.
  • The business is cyclical and longer term investors will be only too aware of past difficulties.

Comment and opinion updated 16 March 2018

Author: Ian Forrest, Investment Research Analyst

The facts

Forecast Estimates 2019

Earnings per share 154.2137p

P/E 13.1

Dividend yield 1.8

Month(s) company is expected to go ex-dividend



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Valued using at least 15 minute delayed prices (where available)