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08.09.2020

Ashtead fares well

Ashtead, owner of Sunbelt Rentals in the USA, Canada and the UK, has reported a fairly positive first quarter, given the fact that the entire period was affected by the Covid-19 pandemic.

Total revenues were seven percent lower than this time last year at £1.2 billion, with pre-tax profits dropping 38 percent to £192 million. In the US, Sunbelt Rentals revenues declined seven percent to $1.28 million, with an operating profit 27.5 percent lower at $324.1 million.

Sunbelt Canada had revenues of $90.4 million, five percent down on the same quarter last year, while last year’s profit of $16 million was reduced to a $100,000 loss. This was mostly due to an $11 million loss at its William F White International, TV and studio rental business that it acquired in December - see: Sunbelt Canada aquires WFW.

Finally in the UK, A-Plant - now rebranded as Sunbelt Rentals - saw revenues fall six percent to £123.3 million, with an operating profit of £8.3 million, 46 percent down on last year.

The group slashed capital expenditure during the first quarter from £521 million last year to just £98 million this year, leading to the average age of the fleet increasing from 33 to 38 months. The company says that it expects to spend a total of between £480 and £540 million for the year, barely a third of last year’s £1.48 million spend- which was eight percent down on the prior year - although it also said that it might adjust this depending on how the year progresses. Net debt was reduced from £5.16 billion to £4.82 billion, with a £340 million cut. This in spite of the fact that the company says that trading in August has returned to pre-Covid levels.

Chief executive Brendan Horgan said: "In a quarter of ongoing market and operating environment challenges, our dedicated team members throughout North America and the United Kingdom once again delivered for all our stakeholders. I am extraordinarily proud of, and grateful for their collective response and execution, doing so while keeping our leading value of safety at the forefront of all we do.”

“In these challenging markets, the group delivered a strong quarter with rental revenue down only eight percent at constant exchange rates. This resilient performance illustrates the successful execution of our long-term strategy, which we embarked upon after the last recession, to broaden and diversify our end markets and strengthen our balance sheet. This positioned us to capitalise on our ever increasing scale, while remaining agile, particularly during these unprecedented times. The actions we took to optimise cash flow, reducing capital expenditure and operating costs, resulted in record free cash flow for the first quarter of £447 million (2019: £161m) contributing to reduced leverage of 1.8 times compared to 1.9 times at year end.”

“Looking forward, the strength of our business model and balance sheet positions the group well in these more uncertain markets. Assuming there is no significant Covid-19 second wave leading to major market shutdowns, like we experienced earlier this year, we expect full year group rental revenue to be down mid to high single digits when compared with last year on a constant currency basis. The benefit we derive from the diversity of our products, services and end markets, coupled with ongoing structural change, enables the board to look forward to a year with free cash flow in excess of £1 billion, continued strengthening of our market position and the medium term with confidence."

Vertikal Comment

Although it has been some time since we covered revenue declines at Ashtead, this remains an exceptional result given the current crisis. Once again it is a shame to see how far it has cut capital expenditure, although somewhat understandable as it looks to reduce its debt mountain. However given the way it has performed over the past three months it might have been a little less drastic and provided a bit more support to manufacturers while possibly benefiting from some very good deals.

The crisis will throw up some opportunities in terms of acquisitions, while Ashtead appears to be handling the crisis well, something not true for all major rental companies.

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