12.12.2017

First £1 billion quarter for Ashtead

Ashtead, parent of Sunbelt in the US and Canada and A-Plant in the UK, has reported its first £1 billion quarter.

Revenues increased 20.5 percent to £1.02 billion with all areas of the business contributing strongly both organically and through bolt-on acquisitions. Pre-tax profits for the quarter were 12.5 percent higher at £264.2 million, they lagged revenue growth for a number of reasons including some one-off charges and the restructuring of part of its debt.

In the first half the company reported revenues of just under £1.9 billion, an increase of 22 percent on the same period last year. Pre-tax profits jumped 19 percent to £493.1 million.

Looking into the detail:
First half revenues at Sunbelt were 16.5 percent higher at $2.08 billion, with 32 new stores added, around half of which were specialty locations. It also benefited in the second quarter from an estimated bonus of $40 to $45 million from clean-up and restoration work following hurricanes Harvey, Irma and Maria. Utilisation improved one percent to 74 percent but yield slipped suggesting lower rates. Operating profit was 19 percent higher at $702.9 million.

Ashtead is now showing Sunbelt Canada separately, with revenues more than two and half times higher than last year thanks, in part, to the acquisition of CRS in August. The underlying business also performed well with rental revenue increasing 22 percent. Total revenues almost tripled to C$91 million and operating profit quadrupled to $20.9 million.

In the UK A-Plant revenues jumped 23 percent to £245.1 million, with a larger fleet on rent, and higher sales, partially offset by lower yield. Operating profit was also 23 percent higher at £46.8 million.

Group capital expenditure in the first half was 3.5 percent higher at £708 million, with fleet disposals totalling £59 million.The company has revised its capital expenditure guidance for the full year to £1.2 to £1.3 billion at current exchange rates. The average age of the fleet has increased from 26 to 30 months.

Net debt at the end of October was six percent higher at £2.85 billion and is the middle of the group's target range.

Chief executive Geoff Drabble said: "The strong quarter was pleasing as it was based on good underlying performance, supplemented by clean up efforts following hurricanes Harvey, Irma and Maria. As a result, Group rental revenue increased 23 percent for the six months and underlying pre-tax profit increased by 26 percent to £537 million. The reported results were impacted favourably by weaker Sterling but, with 20 percent growth in Group rental revenue at constant exchange rates, we have good momentum.”

“Our end markets remain strong and a wide range of metrics have shown consistent improvement. We continue to execute well on our strategy through a combination of organic growth and bolt-on acquisitions. We made significant investments in the period, spending £708 million on capital expenditure and £298 million on nine acquisitions.”

“Our strong margins ensured that, despite these levels of investment, we remain comfortably within our target range for net debt to EBITDA of 1.5 to 2 times. As we execute our 2021 plan, we expect a number of years of good earnings growth and significant free cash flow generation. Given this outlook, we have the flexibility to be operating towards the upper end of the Group's stated leverage range. We are therefore commencing a share buyback programme, of at least £500 million and up to £1 billion over the next 18 months.”

“We continue to enjoy support from good end markets, a strong balance sheet and impressive operational execution. Whilst we would anticipate that activity levels would normalise during the second half, post hurricane clean-up, we expect full year results to be ahead of our prior expectations. Our strong performance, together with the successful execution of our 2021 plan, allows the Board to continue to look to the medium term with confidence."

Vertikal Comment

Well what is there to say that we have not already said before? Once again Ashtead has posted strong growth in both revenues and profits, with a good balance between organic growth and acquisitions. The business seems to do no wrong which would normally spark suspicion, however given the company’s history and the measures put in place around 14 years ago, the numbers are entirely credible. It seems that the company is simply going through one of these relatively rare golden periods, and firing on all cylinders.

The challenge now is to keep this rolling indefinitely - something that has proved elusive in our industry in the past - but with greater corporate maturity while the underlying market still has tremendous growth potential before it reaches full maturity, the time may have come for long sustained high level growth.

The company has also announced an update to its ongoing succession plans, with the promotion of Sunbelt’s Brendan Horgan to group chief operating officer while retaining his current duties at Sunbelt, and the planned retirement of chairman Chris Cole late next year. See new COO for Ashtead

No question about it, Ashtead is on a roll, with strong growth looking set to continue. Good news for the company, its shareholders and the industry in general.