Ashtead continues to grow as US homebuilding boom continues, but shares slide on economic uncertainty
- The Ashtead Group announced that its revenue increased by just over $400 million to $2.26 billion
- The company’s UK trade has been impacted by the demobilization of Covid-19 testing sites
- A pandemic-driven surge in US housing construction has given the group a boost
The Ashtead Group has reported further impressive results as it continues to benefit from healthy demand for its products in the US.
The industrial equipment rental company said first-quarter revenue increased by just over $400 million to $2.26 billion, while pre-tax profit rose 28 percent to $527 million.
Rental income in the US, where the majority of trade is generated, also increased by more than a quarter on strong performances from general tooling and specialty divisions.
Clean up: The industrial equipment rental company said its first-quarter revenue rose by just over $400 million to $2.26 billion
This significantly offset a slight decline in the UK market, where the company’s business was impacted by the demobilization of Covid-19 testing sites, for which it had provided supplies such as portable generators and traffic cones.
Organic growth contributed the majority of U.S. sales, while only 6 percent came from bolt-on acquisitions completed since May 2021.
Ashtead spent $337 million buying new businesses last quarter, mostly general tooling businesses, but it also bought two film production equipment companies in the UK.
However, due to significant acquisition volume, net debt at the end of July was more than $2 billion higher than at the same time last year.
Established 75 years ago, the Surrey-based group has benefited from a surge in housing construction during the Covid-19 pandemic, which has coincided with a shortage of machinery for sale.
Additionally, its trade was further boosted by the need for a major recovery in the US following the 2021 Atlantic hurricane season.
Boom Times: Ashtead Group has benefited from a surge in housing construction and a shortage of machinery for sale during the coronavirus pandemic
This helped its shares become the best-performing stock in the FTSE 100 over the past year, growing 74 percent, outperforming stocks like Meggitt, Glencore and chemicals maker Croda International.
Chief Executive Brendan Horgan said, ‘We are in a position of strength and have the experience to meet the challenges and capitalize on the opportunities presented by the market conditions we face.’
Horgan faces a possible revolt over his likely £6.6million salary package at the group’s annual general meeting later today.
Institutional Shareholder Services, a proxy advisory firm, has advised investors to vote against the package as it “does not meet market standards”.
Despite a solid first quarter performance, economic pressures and rising interest rates weighed on Ashtead Group shares. They closed Tuesday’s trading down 2.4 percent at £42.07.
Ashtead also said rising interest costs mean adjusted pre-tax earnings will be in line with previous guidance.
However, total rental income is expected to rise 15 to 17 percent this year, up from previous forecasts of 12 to 14 percent, with forecasts raised in all areas.
Victoria Scholar, Head of Investment at Interactive Investor, said: “This is a strong set of top and bottom line numbers from Ashtead, which appears to be doing its best to meet the challenges of supply chain constraints, inflation, labor shortages and rising growth master interest.
‘Ashtead is a cyclical company exposed to the ups and downs of the macro economy and the threat of a UK recession which will be a major headwind this year.’