US housing and construction market boom boosts UK’s Ashtead & Ferguson

The firms benefit from exposure to US markets in the wake of severe weather conditions.

Article updated: 19 June 2018 10:00am Author: Helal Miah

This morning we have had reports from two companies with very similar exposures, Ashtead and Ferguson, both of whom generate the vast majority of their sales in US housing and construction market. Ashtead’s full year revenues came in at £3.4bn while pre-tax came in at £927.3m, both up by 21%. The figures were driven by the healthy US housing and construction market that has driven up the demand for rentals and was also boosted by the last autumn’s severe hurricanes which had left many properties in need of repair.

Over the years the group has benefitted from the change in customers behaviour who now prefer to hire rather than buy the equipment outright; in reaction the group has invested heavily in buying new equipment for hire and opening up new stores. This expenditure along with bolt on acquisitions has left the group with a higher debt position, and this morning’s news that operating costs have increased more than expected with the resultant EPS falling short of expectations and leading the shares to open lower by roughly 6%.

Ferguson reported Q3 revenues up by 10.2% to just over £5bn with an organic growth rate of 7.1% beating expectations and lifting the shares up in early morning trading by roughly 2%. The plumbing and heating manufacturer said that demand remained strong across the US, with the residential market remaining strong while the commercial and industrial markets showed resilience and recovery respectively. In their smaller UK business, after some store closures and a restructuring, they have experienced like for like sales growth of 0.7% with lower operating costs.

Both of these companies over the years have benefitted enormously from the strong growth in the US housing and construction markets. Current economic conditions in the US remain supportive of further growth in housing and construction activity. We believe that both of these companies are well placed to further benefit and give the UK investor some direct exposure to one of the US economy’s most attractive sectors in the current environment. Both should be attractive for investors looking for capital growth who are willing to accept a medium level of risk.

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Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.