How Is Global Economic Worries Impacting Ashtead Group (AHT)?

Overview

Ashtead Group PLC (Ticker Symbol: AHT) is a British equipment rental company, with headquarters in London, United Kingdom. The company was founded in 1947 as Ashtead Plant Hire Company Limited. In 1968, it was listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. The company operates in the US, UK and has a limited presence in Canada. Paul Walker is the non- executive chairman and was appointed to the position in September 2018. Geoff Drabble, who is the Chief Executive, was appointed in January 2007. Michael Pratt holds the responsibilities of the Finance Director. [optin-monster-shortcode id="wxhmli4jjedneglg1trq"]

The company rents a variety of construction and industrial equipment for a myriad of applications to a wide range of customers, ranging from nonresidential construction markets to climate control and disaster relief. The company's business model includes buying a variety of equipment from leading manufacturers and renting it on a short-term basis to customers through the company's platform. The old equipment is sold in the second-hand market.

Segments

The company primarily operates in the US, Canada and UK, which are also its operational segments. In the US, the company operates through the brand name Sunbelt Rentals US. It is the second largest equipment rental company in the country and seeks to increase in market share rapidly. The subsidiary has 719 locations in the country. A-Plant, which operates in the United Kingdom, is the largest equipment rental business in the UK with 194 locations nationwide. In Canada, the company operates under the brand name Sunbelt Rentals Canada. The company's market share has been increasing through a series of acquisitions and is currently present in British Columbia, Alberta, Saskatchewan and Ontario through 64 locations.

Key Financial Metrics (H1 FY19, in £m)

(Source: Company Filings)

Financial Highlights (Six Months ended 31 October 2018)

• The revenue in the first half of FY 2019 increased by 19 per cent to £2,250m as compared to the last year. The rental revenue increased by 18 per cent to £2,074m.
• Operating profit in H1 FY19 rose by 20 per cent to £702m, from £591m in H1 FY18.
• The profit before amortisation, exceptional items and tax was up by 19 per cent to £633m against £537m reported last year.
• The post-tax profit was £461m in H1 2018 as compared to £321m reported in H1 2017.
• The earnings per share (underlying results) was up by 42 per cent to 98.8p in the first half of FY 2019, against 70.2p in the corresponding period of 2018.
• The company reported a capital investment in the business worth £1,063m, vs £708m, reported in 1H 2017. Moreover, £362m was spent on bolt-on acquisitions, against £298m in 2017.
• The net debt to EBITDA leverage remained stable at 1.8x.
• The interim dividend was raised by 18 per cent to 6.5p per share.

Ratios

(Source: Thomson Reuters)

Ratios Commentary

• The company has consistently performed better than the industry median, with all the profitability measures performing better than the industry. Although the ratios have been decreasing over the years, the fall has not been substantial.
• The quick ratio performance is better than the industry. However current ratio gives the opposite picture when compared with the industry median.
• On the leverage front, debt to equity is still significantly more than the industry.

Share Price Performance

• On 22nd February 2019, AHT share closed at GBp 2,057, up by 0.83 per cent against its previous day closing price.
• Stock's 52 weeks High and Low is GBp 2,461/GBp 1,572.50. At the closing price, the share was trading 16.42 per cent lower than its 52w High and 30.81 per cent higher than its 52w low.
• Stock’s average traded volume for 5 days was 1,056,805.00; 30 days - 1,509,869.83 and 90 days - 1,960,015.01. The average traded volume for 5 days was down by 30.01 per cent as compared to 30 days average traded volume.
• On the valuation front, the stock was trading at a trailing twelve months PE multiple of 12.4x as compared to the industry median of 11.5x.
• The company’s stock beta was 1.03, reflecting relatively same directional movement of stock with the index.
• Total outstanding market capitalisation was around £9.74 billion and a dividend yield of 1.65 per cent.

Outlook

• The company expects the full year results to be ahead of the management’s expectations.
• In the longer term, being a cyclical company, there is a strong relationship between demand for company’s products and levels of economic activity. The construction industry’s business cycles too affect the company’s financials. Any downturn in global economic activity can have an adverse impact on the company’s performance.
• The company's markets in the US and Canada are going through a structural change: customers are opting to rent equipment rather than own it and the market is consolidating. This gives the company an excellent opportunity to tap on this fundamental shift.
• The UK market is more mature and competitive, but the company is the biggest in its industry and is in a strong position to make the best of market conditions.

Conclusion

The company’s growth prospects look favorable as innovations and acquisitions have been done to cut down on costs and expand to new markets. Given the current trading levels which indicate the stock movement towards 52-week high with support coming from few growth drivers like positive economic environment in major markets and fundamental shift in the US towards renting, the market can keep a watch on the Ashtead Group stock going ahead.