06.09.2022

Another mega quarter for Ashtead

Anglo American rental group Ashtead, which operates as Sunbelt Rentals, has reported strong first quarter growth.

Group result
The group as a whole comprises three operations Sunbelt USA, Sunbelt Canada and Sunbelt UK. Total revenues for the three months to the end of July were $2.26 billion, up 25 percent on the same three months last year. Pre-tax profits jumped 28 percent to $527 million, capital expenditure during the period increased 27 percent to $699 million, while the full year forecast remains at $3.3 to 3.6 billion.

Net debt during the period increased 34 percent to $7.7 billion, driven by the capital expenditure, plus $337 million spent on 12 ‘bolt-on’ acquisitions - nine of them in the USA, two in the UK and one in Canada - along with spending on its share buyback programme.

Sunbelt USA
Sunbelt USA continues to be the growth engine of the group with revenues jumping 29 percent to $1.9 billion, while operating profits improved 31 percent to $567.1 million. Virtually all of the growth came from higher rental revenues which totalled 1.77 billion, although sales also edged up a little. As a result of the strong start the company has increased its full year forecast with 12 month growth expected to be in the region of 17 to 20 percent.

Sunbelt US acquired the business and assets of nine companies in the quarter - Mashburn Equipment in Georgia, Amos Metz Rentals & Sales in California, George's Tool Rental in Pennsylvania, Milford Rent-All in Maine, R&N Tool Rental in Indiana, Harmar Contractors Equipment in Pennsylvania and Chump Management/Power Equipment Rental in Utah - all of which are general and tool rental companies. It also acquired A-V Equipment Rentals in California and the power rental division of Filmwerks in North Carolina

Sunbelt Canada
The Canadian business posted revenue growth of 19 percent to C$176.4 million, with an operating profit of C$38 million up nine percent on the same quarter last year. Growth was led by higher rentals but spread across all areas of the business. In June Sunbelt Canada acquired 100 percent of the shares in MacFarlands, a general tool business in Nova Scotia and New Brunswick.

Sunbelt UK
UK revenues slipped four percent to £181.8 million, due entirely to the Covid test centre contract with the Department of Health winding down during the quarter. Rental revenues improved 11 percent to £149 million. Operating profits were £25.7 million, a fall of 18 percent on the year due to the lower sales revenues involved with the Covid test contract.

In May Sunbelt UK acquired all of the equity in film and TV camera rental company Movietech, based at Pinewood Studios in England and Great Point Seren Studios in Cardiff, Wales. Then in July it added studio lighting and generator rental business PKE Lighting in an all-share purchase deal.

CEO comment

Chief executive Brendan Horgan said: "The group has made a strong start to the financial year across all geographies with rental revenue up 26% at constant currency. This market outperformance across the business 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.”

“Our end markets remain strong, and we continue to execute well across all actionable components of our strategic growth plan, Sunbelt 3.0. In the quarter, we invested $699m in capital across existing locations and greenfields and $337m on 12 bolt-on acquisitions adding a combined 33 locations in North America. This significant investment is enabling us to take advantage of the substantial structural growth opportunities that we see for the business as we deliver our strategic priorities to grow our general tool and specialty businesses and advance our clusters. We are achieving all this while maintaining a strong and flexible balance sheet with leverage near the bottom of our target range.”

“Our business is performing well with clear momentum in supportive end markets. We are in a position of strength and have the experience to navigate the challenges and capitalise on the opportunities arising from the market circumstances we face, including supply chain constraints, inflation, labour scarcity and economic uncertainty, all factors which we are convinced are drivers of ongoing structural change. The business is performing strongly, with revenue and operating profit ahead of our previous expectations. This performance is offset by increasing interest costs and therefore, we expect adjusted profit before taxation for the year to be in line with our previous expectations and the board looks to the future with confidence."

Vertikal Comment

This level of ongoing growth, most of which is organic, is quite remarkable, and in times past would have been viewed with a suspicious eye. However, there is no question that Ashtead has real momentum, especially in the USA, where it appears to have developed a highly efficient knack for incorporating new businesses into its operations.

One thing that might be helping is that it has a strong brand image and has worked hard to generate a positive quality image, something that some other mega rental groups have not always managed to achieve to the same degree. That said, the market is strong and set to get stronger as the government ramps up its infrastructure spending programmes, while natural disasters also continue to add to the business.

In the UK the situation is more complex, the company does seem to be doing far better than during some periods during the last 15 years. The Covid test centre contracts have been a fantastic boost to the company’s fortunes, its challenge now will be to ramp up its regular operations. The move into more specialist film and studio equipment rental is an interesting one.

Overall, an excellent start to the fiscal year for Ashtead.