Ashtead accelerates in third quarter

Revenue and operating profit growth sped up at Ashtead Group in the US-focused equipment rental group's third quarter of trading.

Underlying rental revenue increased 19% in the three months to 31 January to £1.05bn, operating profit 21% to £297.2m and profit before tax 17% to £254.3m, after the first half saw around 18% growth across the board.

As financing costs increased reflecting a higher average interest rate and higher average debt levels, offsetting a lower US federal tax rate, earnings per share were up 18% to 40.0p.

Chief executive Geoff Drabble said Ashtead, which generates around 85% of sales and 90% of profits from its Sunbelt American operations, continues to experience "strong end markets in North America and are executing well on our strategy of organic growth supplemented by targeted bolt-on acquisitions".

With £1.29bn of capital invested in the business in the nine-month period, up from £859m a year ago, and £491m spent on bolt-on acquisitions versus £315m last time, plus with £550m spend on a share buyback programme, reported net debt increased to £3.7bn from £2.6bn.

Investment has added 112 locations and resulted in rental fleet growth of 18%, which Drabble said "reflects the structural growth opportunity that we continue to see in the business as we broaden our product offering and geographic reach, and increase market share".

On the outlook, he said the continued performance of supportive end markets led to expectations that full-year results will be in line with previous targets, with confidence about the medium term too.

Capex for this year will be at the top end of the previous guidance range and guidance for the next year is for the same order of magnitude.

Shares in Ashtead fell almost 2% to 2,027p in early trading on Tuesday.

Broker Peel Hunt maintained its April 2019 pre-tax profit forecast of £1.1bn, in line with the wider City consensus, to give earnings per share of 178p that would represent growth of 36% over 2018.

The underwhelmed reaction of the shares on Tuesday, trading around 17% below the all-time peak reached last autumn, "probably reflects concern that the US economy is slowing down", said Russ Mould, investment director at AJ Bell.

Ashtead "provides a useful insight into the US economy and how it is performing", he added, with bullish investors likely to take comfort from yet another quarter of double-digit growth.

US fourth-quarter GDP growth rate of 2.6% was perfectly respectable, Mould added, even if it did represent a slowdown from the 3.4% and 4.2% increases seen in the second and first quarters, as the effects of President Trump's tax cuts began to wear off, trade worries gathered, the dollar rose and the US Federal Reserve increased interest rates.

But with the New York Fed now looking for GDP growth of just 0.9% in the first quarter of this year and the Atlanta Fed estimating just 0.3%, Mould added: "This loss of momentum partly reflects the base effect caused by the tax cuts but also a string of soft data, ranging from house sales, auto sales, durable goods orders and rising inventory. The first-quarter government shutdown is an additional complication, although that could at least mean there is some element of a snapback in the second-quarter, which may offer some comfort to bulls of Ashtead’s stock and those who are looking for the US economy to keep on firing global growth in 2019 and beyond."