Rental firm Ashtead saw revenue climb past the £1bn mark in its latest quarter as US division Sunbelt got a boost from the aftermath of two US hurricanes, scoring investors a healthy return on their shares.
Ashtead, which rents out industrial equipment like diggers and construction tools, recorded a 17 per cent year-on-year rise in rentals to reach £1.1bn in revenue over the three months to the end of October.
Profit before tax also grew 16 per cent to hit £347.8m as earnings per share grew by a whopping 50 per cent to hit 52.1p.
The company prepared to pay shareholders an interim dividend of 6.5p per share, up by 18 per cent on the same period last year.
However, net debt grew by 21 per cent to £3.6bn after the firm spent £362m on bolt-on acquisitions and weaker sterling weighed the company down by £200m, though net debt remains within its target range.
Shares rose by seven per cent in early trading before falling back to a three per cent increase.
Why it’s interesting
Ashtead managed to boost both its top and bottom lines despite investment £1bn in the firm to grow its rental fleet by 15 per cent and adding 80 locations through acquisitions, as well as a £425m outlay on a share buyback programme to manage its growing debt pile.
It also expects full-year results to beat its own expectations, appearing bullish on the health of the industry, after the sector's output increased dramatically in October.
The results are some of the last to be overseen by boss Geoff Drabble, who is stepping down next May after nearly 12 years in charge to make way for the boss of US division Sunbelt.
Sunbelt contributed most of the rise in revenue and profits, accounting for 87 per cent of revenue in Ashtead's half-year results after benefiting from the clean-up efforts following Hurricane Florence and Hurricane Michael in the US, while UK .
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said that while UK results were "a fly in the ointment" after operating profit for its British segment slipped, Ashtead's investment positions it well for growth.
“Investment has dramatically increased the kit Ashtead has available for rent, and both the US and Canada have seen the amount of equipment on rent at any one time increase," he said.
"That investment is coming at a price, with debt up £761m, and while overall leverage isn’t increasing it does leave Ashtead more vulnerable to a downturn.”
But Ashtead's exposure to the US construction market may be to blame for a 34 per cent drop in its share price since October, according to Richard Hunter, head of markets at Interactive Investor.
"The shares have been pounded even if the company’s performance is painting a different picture," he said.
"It may well be that Ashtead’s fortunes remain largely welded to prospects in the US, yet the share price performance over the last year has not reaped the benefit of earlier economic success. Even so, the general view of the company is rather more reflective of both performance and outlook, with the market consensus coming in at a strong buy.”
What Ashtead said
Chief executive Geoff Drabble said:
“The group delivered a strong quarter with good performance across the group,” Drabble said, adding that the firm’s investment this year is a sign of the industry’s growth potential.
“This investment 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,” he said.
“Our business is performing well in supportive end markets. Accordingly, we expect full year results to be ahead of our prior expectations and the board continues to look to the medium term with confidence.”