Plant and equipment hire group Ashtead (AHT) reported robust growth in the three months to the end of January and raised its full year outlook.
Having lost a third of their value since early December, the shares added 3.5% to £48.05 as investors topped up holdings.
STRONG MOMENTUM
Rental revenue rose 25% to $1.81 billion in the third quarter, marking an acceleration in sales growth from 18% in the first half.
In the US, which makes up the bulk of the firm’s operations, revenue was driven by strong underlying demand as well as the firm’s strategy of growing its specialty hire business.
In the first nine months of the year the company invested $1.7 billion to grow its business, with 81 new locations added in the US and Canada.
Acquisitions accounted for $938 million of the spending, with a further $270 million of bolt-on deals slated for the final quarter.
Chief executive Brendan Horgan said the elevated level of capital expenditure ‘takes advantage of the ongoing structural growth opportunity that we continue to see in the business as we seek to deliver on our strategic priorities to grow general tool and amplify specialty’.
SOLID FINANCES
The firm is able to spend so much on growing its operations thanks to its high operating margins in the US and Canada, which average close to 48% of revenue.
With such a high level of recurring profit, leverage as measured by net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) is an easily manageable 1.5 times.
Horgan expects full year capital spending to be slightly above his original estimate of $2.2 billion to $2.4 billion and is planning to step up investment to $3.2 billion to $3.4 billion in the coming year ‘to take advantage of strong market conditions’.
RAISED OUTLOOK
Interestingly, Horgan sees supply chain constraints and cost inflation as a positive for Ashtead as they represent ‘drivers of structural change’ for its customer base.
Group rental revenue for the full year is forecast to rise by 19% to 21% against previous guidance of 17% to 20% thanks to better than expected demand in the US and Canada.
Earnings for the full year will also be slightly ahead of management’s previous expectations.
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