New: Ashtead / Craneware / Halma / Scot­tish Mort­gage

Plant hire busi­ness un­fairly af­fected by the sell off given strong re­turns and div­i­dend track record

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Ashtead (AHT) have fallen more than 17% in the mar­ket rout.

it’s main busi­ness is leas­ing con­struc­tion and in­dus­trial equip­ment. The US ac­counts for al­most 85% of sales with an­other 4% com­ing from Canada and the bal­ance from the UK where it op­er­ates the A-Plant brand.

The group re­cently (11 Sep) re­ported first-quar­ter sales up 19%, driven mainly by strong like-for-like rental growth in the US (19%), and raised its full-year profit tar­get.

US con­struc­tion spend­ing is grow­ing at twice the rate of GDP driven mainly by pri­vate non-res­i­den­tial build­ing and big in­fra­struc­ture projects.


As the US mar­ket re­mains very frag­mented, bolt-on ac­qui­si­tions can pro­vide a use­ful kicker to the com­pany’s al­ready strong or­ganic growth.

The com­pany is both in­vest­ing in its ex­ist­ing busi­ness and us­ing funds for th­ese mod­est-sized deals. It al­lo­cated £465m to cap­i­tal ex­pen­di­ture in its first quar­ter and spent £145m on M&A. De­spite th­ese ma­te­rial lev­els of in­vest­ment, the com­pany re­mains com­fort­ably within its tar­geted range of 1.5 to two times net debt to EBITDA (earn­ings be­fore in­ter­est, tax, depreciation and amor­ti­sa­tion).

Thanks to a high rate of like­for-like growth and the abil­ity to keep tak­ing costs out of the busi­ness, most of the in­crease in sales drops through to oper­at­ing profit. Ashtead’s oper­at­ing mar­gin is 30% com­pared with an av­er­age of 10% for com­pa­nies in the FTSE 100.

Fol­low­ing the fall in its shareprice Ashtead now trades on 12 times earn­ings for the year to April 2019 which seems very cheap for a busi­ness with 30% mar­gins and a re­turn on cap­i­tal of nearly 40%.


The com­pany also yields 19% and strong cash gen­er­a­tion un­der­pins an im­pres­sive div­i­dend track record. To place this in con­text, fig­ures from AJ Bell’s lat­est Div­i­dend Dash­board for the sec­ond quar­ter of 2018 showed that the 2018 yield on the pur­chase price of Ashtead’s shares ten years ear­lier was a stag­ger­ing 44.9%.

Stock­bro­ker Kil­lik & Co com­ments: ‘We con­tinue to see Ashtead as an at­trac­tive in­vest­ment op­por­tu­nity. Not only will it be a ben­e­fi­ciary of in­creased in­fra­struc­ture spend­ing needed in the US and UK, but it is also play­ing a sec­u­lar trend to­wards in­creased rental pen­e­tra­tion and con­sol­i­da­tion of a frag­mented mar­ket.’

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