Banking on the strong foundation and with the competitive advantage, the group has created over the previous one decade for its business, Ashtead Group Plc has turned into a multibagger which has generated a fortune for the shareholders of the company over the past 10 years. The quick analysis of this FTSE 100 company for the past 10 years reveals that shares of Ashtead Group Plc have recorded a gargantuan 3,023% return including dividends- moving from a share price of GBX 71.71 (adjusted as on close of September 23, 2009) to GBX 2,240 levels (as on close of September 23, 2019).
It implies that £1,000 invested ten years ago in Ashtead Group Plc is worth £31,230.0 now, including capital gain and dividend reinvested- 10 years multiplier in GBP = 31.23x.
Ashtead Group Plc has positioned itself as a global leader in the equipment rental arena. The group provide equipment that lifts, powers, generate, moves, digs, supports, scrubs, pumps, directs, ventilates- whatever the job requirement is. Its areas of operations are divided into three segments, which are Sunbelt US, A-Plant and Sunbelt Canada, respectively. In the financial year ended April 2019, the group’s 85 per cent of the total revenue came from Sunbelt US, 10.6 per cent from A-Plant and rest from Sunbelt Canada.
In the United States, Ashtead’s Sunbelt holds a market share of 9% and reported decent growth from a market share of 4% in FY07 to 9% in FY19 and is targeting to acquire 15% market share by the FY25, as per management estimates based on the IHS Markit market estimates.
Ashtead recorded an unusual growth in the past ten years
The group’s revenue during the past 10-years has surged from £ 1,124.0m in 2009 to £ 4,499.6m in 2019 and recorded a Compounded Average Growth Rate (CAGR) of 15%; gross profit surged at a CAGR of 16%, Operating Income with 33% and Net Income by 29% during the period. Also, since 2012, the group’s top-line has been consistently on a growth path, rising every year by more than 15% while EBITDA grew every year by over 20%, and the company consistently maintained an EBITDA margin of more than 15% on YoY basis during the same period. These above-mentioned financial measures exhibit the group’s financial and operational strength as these are some very strong growth metrics which one can't find easily in every company.
But the strong financial is not the only reason behind the massive surge in its stock price or return it handed over to its shareholders; rather it can be called the competitive advantage that the group had created for itself over the last decade.
From the dividend standpoint, the group’s annual dividend surged from 2.0p/share in 2010 to 33.50p/share in 2019, which reflects a compounded average growth rate (CAGR) of 37%, again a very uncommon fundamental metric. The amount of dividend income coupled with massive growth it has provided to its shareholders is rare.
Higher Margin of Safety
Benjamin Graham, in his book "Intelligent Investor", first published in 1949, presented a simple tool to minimise the odds of error in an investor's favour and termed it "margin of safety". He emphasised that one should never overpay for a stock, despite however attractive the stock may seem. He suggested investors to analyse the earnings yield of the stock against the yield on the government bonds to arrive at a margin of safety.
Earnings yield is calculated as earnings per share divided by stock’s current market price (GBX), which is inverse of the price-to-earnings (P/E). This provides a broader view about the return that the stock would deliver for every sterling pound invested by the investors in it.
Stocks of Ashtead provides higher margin of safety to their shareholders, as in the FY19 the group’s diluted earnings per share excluding extraordinary items stood at 173.2p/share and the current market level of its stock stood at GBX 2,240 (as on September 23, 2019), and Earnings Yield of the group stood at 7.7% which is 13.81 times of the 1 Year UK Government Bond Yield of 0.55% (as on September 23, 2019, before the market close) and over 14 times of the UK 10 Year Government Bond Yield.
Recently, the group has reported results for the first quarter ended July 31, 2019, in which group’s underlying rental revenue surged by 16% from £961.0m reported in 1Q FY19 to £1,164.5m in 1QFY20. Underlying EBITDA during the period under consideration expanded 15% to £626.6m, and the company recorded an Underlying EBITDA Margin of 53.8%. On a statutory standpoint, its revenue surged by 17% to £1,278.2m on YoY basis, operating profit stood at £358.3m and recorded a growth of 11%, which implies an operating margin of 28%. Pre-tax profit of the group increased by 8% to £304.7m, and Earnings per share surged by 12% to 49.1p from 43.0p recorded in the year-over period.
Group’s capital expenditure during the quarter under review was at £521m gross and £451m net proceeds from disposal against the capital expenditure of £465m recorded in the 1QFY19, which reflects the robust market and their ability to win market share.
In the year-ago period, shares of the Ashtead Group Plc have delivered a negative price return of 4.96%, however, on a year-to-date basis, its shares have handed a price return of approximately 36.84% as compared to the FTSE 100 return of 8.89% during the same period and reported a relative price increase of 27.91%. In the past six-months Ashtead’s stock traded 69 times up, 54 times down and traded flat 3 times against their respective previous day closing prices. In the last six months the number of rise outnumbered falls 69:54 or 1.2:1.0 respectively.
At the time of writing (as on September 24, 2019, at 08:38 AM GMT), shares of the Ashtead Group Plc were trading at GBX 2,253 and added 13 points or 0.58% against the previous closing level. Also, at the current trading levels, its shares were trading well above the crucial long-term support level of the 200-day simple moving average price.
The price to 200-day SMA ratio stood at 1.10x, a bullish indicator. Also, the Price/SMA-200 of 1.10x for Ashtead Group Plc is higher than the Price/MAP 200 for the FTSE 100 index of 1.01x.
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