Ashtead: can it keep up with 897% five-year share gain?

by William Cain, Shares Magazine

Equipment rental specialist Ashtead is one of a select group of British businesses that has established a market-leading presence across the Atlantic. Worth £5.5 billion, it may be one of the biggest companies on the London stock market unfamiliar to most people.

Ashtead's Sunbelt Rentals subsidiary is number two in the US market for heavy equipment hire, with a 6 per cent market share. It provides everything from aerial work platforms to air conditioning equipment for commercial clients.

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Financial results published on 16 June show the unit is making impressive progress towards its aim of doubling market share and catching market leader United Rentals.

Earnings per share, a key measure of shareholder value, increased by 34 per cent to 62.6p in the financial year to 30 April 2015, versus 46.6p a year earlier. Rental revenue was 24 per cent higher at £1.8 billion, levels of growth that are beyond the reach of most other companies in the FTSE 100.

Ashtead's bold move to invest heavily in new plant and equipment as the financial crisis receded has paid off handsomely. Shares in the business are up 897 per cent in the past five years as its new fleet of equipment attracted customers when business confidence recovered.

While its business is much larger in the US, Ashtead also has a UK presence via equipment hire group A-Plant, which is also doing quite nicely. Second in the market with an 8 per cent market share, it is only 1 per cent behind the UK market leader – another listed business, Speedy Hire.

The UK division earned around £46 million before interest and tax in the latest financial year, up from £25 million the year before.

Key to the investment case is growth in US commercial and Government construction expenditure, which analysts expect to pick up in the years ahead.

Most analysts have a positive view on the stock following the financial results which were generally considered to be better than forecast. But fund managers at Henderson aren't as bullish, having cut their position in the stock last year because dramatic growth in Ashtead's share price had not been matched by an equivalent increase in profitability.

"There is nothing wrong with the company, but our view is that the valuation the stock market has placed on Ashtead now fully reflects the company's prospects and while we still expect profit upgrades Ashtead shares may be progressively de-rated," wrote fund managers James Henderson and Colin Hughes in February 2015.