05.03.2024

Profit drop for Ashtead

UK based rental group Ashtead, owner of Sunbelt Rentals in the USA, Canada and the UK, has posted its results for the nine months to the end of January. They show a healthy increase in revenues but lower pre-tax profits and higher levels of debt. The results are as follows

Nine months/YTD

Group revenues increased 14 percent to $8.23 billion, while pre-tax profits were flat at $1.69 billion, this due to higher costs and a substantial jump in interest costs from $259 to $402 million.

The results are broken down as follows

YTD by country

US Revenues: totalled $7.07 billion +15.2% with an Operating profit of $2.08 billion +10.1%
Canadian Revenues: were c$657.6 million +15% with an Operating profit of c$105.7 million -20%
UK Revenues: came in at £523.7 million very marginally above last year’s level with an Operating profit of £41.3 million -25%

Capex & fleet age Capital expenditure so far this year has been $3.51 billion, with disposals of $661 million. The average age of the fleet at the end of the period was 31 months, compared with 37 months at the same point a year earlier.
The capital expenditure was split as follows: USA - $3.09 billion, Canada c$279 million and UK £171 million.
The full year capex forecast remains at $3.9 to $4.3 billion, with $4.2 billion now the most likely.

Acquisitions: The company has also spent $906 million on 26 ‘bolt on ‘ acquisitions, adding 106 new locations, while it continues with its share buyback programme.

Net Debt at the end of January was 25 percent higher at $11.16 billion, due to high capex, acquisitions and share buybacks.

Third quarter

Total revenues in the last three months were nine percent higher at $2.66 billion, while pre-tax profits dropped 12 percent to $442 million.

Third quarter by country in dollars

US Revenues: totalled $2.28 billion +20% with an Operating profit of $600.1 million -1%
Canadian Revenues: were $169.8 million +4% with an Operating profit of $18.7 million -37%
UK Revenues: came in at $208 million +8% with an Operating profit of £10.9 million +18%
In the USA organic growth (same-store and greenfield startups) was nine percent , while acquisitions contributed three percent of rental only revenue growth.
In the UK acquisitions contributed two percent of the growth, while rental revenue growth has been driven by both rate and volume improvements.

Chief executive, Brendan Horgan said: "The group's operating performance continues to be strong with revenue up 14% and rental revenue growth of 11%. This performance is only possible through the dedication of our team members who deliver for all our stakeholders every day, while ensuring our leading value of safety remains at the forefront of all we do.”

“We are executing well against our strategic growth plan, in end markets which remain robust. In the period, we invested $3.5bn in capital across existing locations and green fields and $906m on 26 bolt-on acquisitions, adding a combined 106 locations in North America. This investment is enabling us to take advantage of the substantial structural growth opportunities that we see for the business. We are achieving all this while maintaining a strong and flexible balance sheet.

“As outlined previously, our third quarter rental revenue growth in North America was affected by the lower level of emergency response activity related to natural disasters and the longer than anticipated actors' and writers' strikes. We now expect group rental revenue growth for the full year to be at the low end of our 11 - 13% range and full year results broadly in line with expectations.”

"Our end markets in North America remain robust with healthy demand, supported in the US by the increasing number of mega projects and recent legislative acts. We are in a position of strength, with the operational flexibility and financial capacity to capitalise on the opportunities arising from these market conditions and ongoing structural changes.”

Looking to 2024/25, our initial plan for gross capital expenditure is $3.0 - 3.3 billion , of which $2.0 - 2.3 billion will be in the US. The board looks to the future with confidence."

Vertikal Comment

While there is much positivity to take from these numbers, falling profits coinciding with rapidly rising debt always rings alarm bells. However, the underlying strength of the business shines through, the combination of a young rental fleet with increased product and industry diversity and wider geographic coverage without complicating the business are all positive factors.

The company should shine in its new fiscal year which kicks off in May, both in terms of increased results, but also cleaner comparisons with the prior year, with the 2022 natural disasters, actors guild strikes and UK health business all dropping out of the comparatives.

Lets see what the fourth quarter brings in.