28.06.2006

Ashtead hits new records

The Ashtead group, owner of Sunbelt Rentals and A-plant, and the world’s fourth largest rental company, has reported a record year in 2005/06.

The company saw revenues for the year rise by almost 22 percent while pre-tax profits climbed by over 250 percent to £81.7 million. The company says that if distortions and exceptionals are taken out of the equation “underlying profits” more than tripled.

A-Plant

A-Plant’s revenues for the year were £160.7million up just three percent from £156.3million last year. Revenue growth increased during the second part of the year with sales in the final quarter up by eight percent on the same period last year.

This says Ashtead is due to the restructuring of A-Plant’s sales force which it completed in the first half. Profits remained close to last year, although the company says that A plant profits in the fourth quarter improved by 47 percent and “underlying operating profit” for the year grew by 22 percent to £13.9million (2005: £11.3m), representing a margin of 8.6 percent (2005: 7.3%) .

It also says that rental rates, average fleet size and utilisation for the year were all at similar levels to last year. Revenues from A-Plant’s largest 150 customers continued to take a larger slice of the business representing 39 percent of the year’s total.

Sunbelt

Sunbelts revenues grew by 23.8 percent to $818.7million in 2006. This growth came from a fleet on average 11 percent larger than last year and from “significant increases in rental rates” which rose 12 percent in strong market conditions. Average utilisation remained nudged up by a percentage point to 70 percent.

Sunbelt’s “underlying operating profit” was up by 62.7 percent to $175.5millon, representing a margin of 21.4 percent (2005: 16.3%). The American business spent $257.9million on new equipment in the year, in order to maintain and even reduce the average age of the fleet, while stocking six new greenfield branches.

A further sixteen new general equipment rental stores were acquired during the year at a cost of approximately $100million. The company says that their financial performance since acquisition has been strongly positive.

In August Sunbelt disposed of twelve specialist scaffold stores on the west coast and in Texas for $24.3million generating an exceptional profit of $5.1million.

Capital expenditure

The company spent £220 million in new equipment during the year of which £202 was on the rental fleet of which £65 million was for fleet expansion while the balance was replacement. Expenditure in 2006/7 is anticipated to grow by almost 15 percent to £250 million.

Vertikal Comment

No matter which way you look at it this is a very remarkable set of numbers for a group that nearly failed in 2003, when its shares hit a low of 2.5p and its debts looked impossible. Since then profits have grown steadily, the share price recovered hitting 241p earlier this year and the debt, considerable reduced, looks very manageable.

In early June the shares dropped dramatically after long term investor Aegon Asset Management dumped its seven percent holding on the market at 175p per share. Then today we hear that George Burnett has named his retirement date and in spite of the strong results the share price has slipped further.

Could the two be related? Last year when a city recruitment agency claimed to have been appointed to find a replacement for Burnett, supposedly without his knowledge, discussion centred around differences of opinion in the boardroom. Non-executive chairman Cob Stenham and one or two institutional analysts were said to favour moving the groups base and listing to the USA, while Burnett was said to be in favour of the status quo.

Perhaps those bailing out of Ashtead since June 7th fear that such moves will come to pass, once Burnett has gone and feel that this is not in the best interests of the business and their investment?

Regardless of all the intrigue, real or imagined, this is an excellent performance overall. However while Sunbelt continues to grow at a remarkable rate, (The North America business now represents 72 percent of the group’s revenues), A-Plant is only making steady progress. However the UK business improved far more than its results indicate and if the fourth quarter performance is followed up with investment, the 2007 results could be strikingly different.

Watch this space.

See Ashtead drops with a bump-June 8th
See Ashtead posts strong first half..vertikal comment