08.12.2020

Ashtead recovery gathers pace

Ashtead, owner of Sunbelt Rentals in the USA, UK and Canada has reported its half year results which show that revenues have almost returned to normal.

Total revenues for the six months were just three percent below last year at £2.55 billion, with a pre-tax profit of £506 million, 22 percent below last year.

-In the USA revenues were down five percent on the year at $2.75 billion with operating profits 18 percent lower at $781.6 million.
-Canadian revenues were 10 percent higher, thanks to acquisitions, at $220 million, with an operating profit of $33.2 million down 17 percent on the same period in 2019.
-In the UK newly rebranded Sunbelt Rentals posted revenues of £272.6 million, up 6.5 percent on the same period last year, entirely due to high sales of services provided to
the Department of Health. Rental revenues declined two percent on the year. Operating profits fell 32.5 percent to £20 million.

Looking at the second quarter the group as a whole achieved revenues of £1.35 billion down four percent on the same period last year, while pre-tax profits declined eight percent to £314 million.

-Sunbelt US sales declined just under three percent to $1.46 billion, with an operating profit of $457.5 eight percent down on the year.
-In Canada sales were 23 percent higher at $129.8 million, with an operating profit of $33.3 million up 36 percent on the year.
-In the UK revenues in the quarter jumped almost 20 percent to £149.3 million, but operating profits declined 20 percent to £11.7 million, due to the revenue mix.

Capital expenditure for the six months was £343 million just a third of last year’s spend of £1.01 billion, most of the expenditure occurred in the USA in order to meet growing demand. The average age of the fleet increased from 33 to 39 months. The group is now forecasting a full year’s expenditure of £650 to £700 million.

Net debt at the end of September was £4.76 billion a reduction of just over eight percent.

Chief executive, Brendan Horgan said: "I am delighted to report a strong quarter of market outperformance across the business contributing to rental revenue down only four percent in the half year at constant exchange rates. Our dedicated team members throughout North America and the United Kingdom have made this possible, once again delivering for all our stakeholders. I am extraordinarily proud of, and grateful for, their collective response and execution, all while keeping our leading value of safety at the forefront of what we do.”

“This 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 half of £822 million, contributing to reduced leverage of 1.7 times compared to 1.9 times at year end, in the lower half of our target range.”

“Looking forward, the strength of our business model and balance sheet positions the group well in markets that are likely to remain uncertain. Based on our half year performance and assuming no further significant adverse impact on our business resulting from the Covid-19 pandemic, we now expect full year results ahead of our previous expectations. The benefit we derive from the diversity of our products, services and end markets, coupled with ongoing structural change, enables the Board to look to the future with confidence."

Vertikal Comment

Overall an encouraging set of numbers from Ashtead, demonstrating the underlying strength of the business. Reading between the lines it is looking as though 2021 might be reasonably good year, at least back to 2019 and possibly better. Which given the enormity of the pandemic is a pretty good bounce back.

The big question is when will the company feel confident enough to release the purse strings and boost capital expenditure before it is faced with a big catch up cost. The UK is still lagging behind the other two operations, but there are some positive signs.