Fears of a slowdown in the US construction market have been dispelled for now.
Ashtead (AHT) drives surge in revenues from US construction market
- North American Sunbelt business benefited from higher demand for industrial gear.
- Investors welcome the management’s announcement to increase the dividend by 21%.
- We maintain our ‘Buy’ recommendation for investors seeking capital growth and willing to accept a medium level of risk.
In the lead up to these results, there have been some concerns we could see signs of a slowdown in the US construction market which was evident in Ferguson’s numbers, another UK company with heavy exposure to the US construction market. However, these fears seem unfounded looking at Ashtead’s results this morning as underlying revenue growth surged by 18% to £4.1b while operating and pre-tax profits grew by similar rates to £2.1b and £1.1b respectively. The numbers overall were slightly ahead of expectations which helped lift the shares at the open.
The group’s North American Sunbelt business continued its strong growth trend, in part led by the group’s investments into new hire equipment and outlets. They have invested £1.6b in capital and £622m on bolt-on acquisitions and adding 146 locations across the group. These have enabled the group to broaden its product offering, geographic reach while increasing the market share and diversifying the overall business.
Our View on Ashtead - Buy
Management remains confident of its medium term outlook and have raised the dividend by 21% while still expecting to carry out another £500m worth of share buybacks. The market also takes a positive view of its growth prospects, expecting good sales growth into 2020. Despite the good growth prospects, the shares still only trade at a forward P/E multiple just under 10x, we therefore continue with our Buy recommendation for investors seeking capital growth and willing to accept a medium level of risk.
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