FTSE 100 equipment rental company Ashtead (AHT) is on the march after a strong set of results from its main US rival United Rentals.

Justin Jordon, analyst at Jefferies, notes United reported $747m earnings before interest, tax, depreciation and amortisation (EBITDA) for the second quarter of 2017.

This was 3% ahead of estimates and led to a further 3% rise in EBITDA guidance going forward.

United’s promising results are particularly relevant to the Ashtead investment case due to the sheer scale of the UK company’s business in the US. It operates around 550 outlets in more than 40 states.

Analysts at Barclays comment: ‘Ashtead has consistently outperformed United over the last three years.’

They add: ‘United has at times been a big short-term sentiment driver of Ashtead’s share price so in that context, the comments on improving trends should be well received.’

CANADA DEAL TO BRING HOME THE BACON

Ashtead’s presence in North America was bolstered by its recent C$275m acquisition of Canada’s Contracts Rental Supply (CRS).

Ashtead’s acquisition of CRS increases the company’s Canada footprint significantly. CRS is the largest independent general tools rental business in Ontario, the construction heartland of Canada.

The North American equipment hire sector in the US has shown signs of consolidation recently with H&E Equipment Services saying earlier this month it would buy construction rental firm Neff for $1.2bn. Jefferies’ Jordan views it as unlikely that Ashtead will make a counter-bid
for Neff.

STUCK IN A TIGHT RANGE

Ashtead’s shares enjoyed a long rally from June to December last year then seemed to get snagged in a narrow range between £15.50 and £16 since the start of the year. United’s share price follows a similar pattern, rallying fast from November 2016 to January this year before slipping into a narrower range for the last few months.

At the current £16.76 Ashtead trades on a 2018 earnings multiple of 14.2-times using Numis’ earnings per share estimate of 118p. The shares also offer a prospective dividend yield of 1.9%. This is a material discount to its global peer group on an average earnings multiple of around 18.

In September (12 Sept) Ashtead releases its first quarter results. Its full year numbers got a lukewarm response from the market in June largely due to the absence of any guidance for the coming year. If that guidance has instead been provided by United’s results, it bodes well for Ashtead.

Buy on read-across from its US peer.