Profits are up following a strong first quarter.
Equipment rental group Ashtead set to beat full-year guidance
- Ashtead reported significant increases in both revenue and profit, crediting a weaker pound for reinforcing full-year forecasts
- The shares opened up 4% this morning as the group surpassed expectations
- We maintain a ‘buy’ recommendation for investors seeking capital growth and willing to accept a medium level of risk
Ashtead’s first quarter results ending in July continues to demonstrate the exceptionally strong growth we’ve been used to from the company in recent years. The group’s underlying revenue jumped by 19% to £961m, while profit before tax climbed 23% to £286m. These results by all measures easily beat market expectations leaving the share price this morning to rise circa 4%.
All divisions performed well and its most significant operations in the US continued to benefit from the structural changes in the US market where more customers are switching towards renting construction equipment rather than buying outright. There is no doubt that strong performance is also being driven by the strong economic growth in the US and the US construction market.
Management maintains a growth focus for the business demonstrated by the £465m worth of capital expenditures for expansion, including the opening up of 30 new stores and £145m worth of bolt-on acquisitions. Meanwhile they kept the margins high and reduced the leverage to the lower end of their target range. The shares will also have been given a lift this morning by the announcement that the buyback programme will be extended into the 2019/20 financial year with an anticipated spend of £500m.
The current trading outlook remains positive and will be boosted by the weakness in sterling, the upcoming hurricane season, depending on severity, could also result in a boost in equipment hiring activity.
The shares have performed exceptionally well in recent years and we believe that they have more to go given the structural changes and capex made by management. We continue with our ‘buy’ recommendation for investors seeking capital growth and willing to accept a medium level of risk.
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