Tuesday 5 March 2019 9:52 am

Ashtead investors tread carefully as net debt rises at industrial equipment rental firm

Shares in industrial equipment giant Ashtead group fell two per cent on Tuesday morning as it announced ballooning net debt in its third-quarter update.

The firm, which rents out heavy machinery, did however increase revenue by one-fifth and maintained its expectations of full-year results later in 2019.

Read more: Ashtead bullish on beating full-year expectations

The figures

Pre-tax profit rose 17 per cent year-on-year for the three months to 31 January, from £194.3m to £240.9m, while revenue was up 20 per cent from £916.1m to £1.14bn for the period.

But profit after tax was down 68 per cent, from £548m to £180.9m, and earnings per share subsequently also fell 67 per cent to 37.9p.

Net debt spiralled to £3.7bn at the end of the quarter, up 42.3 per cent on the same time last year, when it was £2.6bn.

Why it’s interesting

The firm’s falling profits after tax come as a result of a one-off benefit from a law change in 2017 in the US, where a large part of Ashtead’s business is based through its subsidiary Sunbelt.

But shares fell on Tuesday morning nonetheless. Russ Mould, analyst at AJ Bell said: "This probably reflects concern that the US economy is slowing down."

“With around 85 per cent of sales and 90 per cent of profits coming from its American operation, Sunbelt, Ashtead provides a useful insight into the US economy and how it is performing," he added.

"Investors who have a bullish view of the world will therefore take comfort from yet another quarter of double-digit percentage increases in both sales and profit, as Ashtead added to strong underlying growth with select acquisitions.”

Read more: Ashtead chief executive to step down next May

What Ashtead said

Chief executive Geoff Drabble said: “The group delivered a strong quarter with good performance across the group.

“Our business continues to perform well in supportive end markets. Accordingly, we expect full year results to be in line with our expectations and the board continues to look to the medium term with confidence.”