07.03.2023

And the growth goes on ...

Anglo American rental group Ashtead, owner of Sunbelt Rentals in the UK, USA and Canada, has posted another cracking quarter in terms of revenues and profit growth.

Nine months YTD
Total revenues for the nine months to the end of January increased 25 percent over the same period in 2021 to $7.2 billion, largely due to strong rental growth in North America. Pre-tax profit for the period jumped 33 percent to $1.69 billion.
Sunbelt Rentals UK saw revenues slip almost five percent to £521.7 million, while operating profit fell 23 percent to £55.3 million. All of the decline was down to the ending of lucrative sales and rental contracts relating with the Department of Health for its Covid testing programme which ended in April 2022. Rental revenues improved seven percent to £321 million, while non Covid rental revenues jumped 22 percent.
Sunbelt Rentals Canada reported sales growth of almost 32 percent to c$608.9 million, with an operating profit of c$131.5 million, up 19 percent on the same period in 2021. Growth came from improving rental rates and ongoing expansion of its film/studio related rental operations.
Sunbelt Rentals USA achieved revenues of $6.14 billion, up almost 29 percent on the year, with an operating profit of $$1.89 billion, almost 34 percent higher than in the same period of 2021. Rental revenues increased 25 percent, with organic growth contributing 19 percent of it and bolt-on acquisitions representing six percent of the improvement.

Third Quarter
Third quarter revenues improved 23 percent to $2.42 billion, generating a pre-tax profit of $505 million, up 29 percent on the same period in 2021.
In dollar terms UK third quarter revenues slumped 19 percent to $193.3 million with profit more than halving to $9.2 million. Canadian revenues increased 35 percent to $163.8 million with profits rising more than 28 percent to $29.4. Finally, US revenues in the quarter increased 26 percent to $2.07 billion, with a profit of $607.6 million, up more than 36 percent.

Capital expenditure
Capital expenditure for the nine months increased 43 percent to $2.62 billion gross - $2.19 billion net of disposals. As a result, the average age of the group’s fleet was reduced from 40 to 37 months as of the end of January. The company has increased its full year forecasts to $3.5 to $3.7 billion.

Net Debt
Net debt at the end January was $8.82 billion - an increase of 28 percent or 1.93 billion on the year - thanks to the higher capital expenditure and almost $1 billion investment in acquisitions.

Chief executive Brendan Horgan said: "The group delivered another strong quarter across all geographies, contributing to rental revenue growth of 25% for the nine months at constant currency. We are executing well against all actionable components of our strategic growth plan, in end markets which remain strong. In the period, we invested $2.6bn in capital across existing locations and greenfields and $970 million on 38 bolt-on acquisitions, adding a combined 120 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.”
We expect capital expenditure for the full year to be slightly ahead of our previous guidance at $3.5 - 3.7bn. Looking forward to 2023/24, our initial plans are for gross capital expenditure of $4.0 - 4.4bn, of which, US rental capital expenditure is $3.0 - 3.3bn. This should enable mid-teens rental revenue growth in the US.”

“Our business is performing well with clear momentum in strong end markets, which are enhanced by the increasing number of mega projects and recent US legislative acts. We are in a position of strength, with operational flexibility to capitalise on the opportunities arising from these strong markets and the ongoing drivers of structural change, including supply chain constraints, inflation and labour scarcity. We now expect full year results ahead of our previous expectations and the Board looks to the future with confidence."

Vertikal Comment

There is not much to say about Ashtead’s results, given that 25 percent growth or more has been almost perpetual over the past few years. The company has continually managed to keep up, and often gain on the market leader United Rentals, which has only managed stay ahead by making the occasional mega acquisitions, while Ashtead goes for smaller bolt-ons.
The results of both companies indicate how strong the North American rental market is, and how well the big rental companies are managed. Maintaining consistent service and growth levels over such unwieldy organisations is a nightmare which typically fail. But both companies appear to have mastered it.

Ashtead is forecasting more of the same for the current quarter which could take revenues towards the heady heights of $10 billion, which it will most likely achieve during 2023 on a rolling 12 month basis. The only slight negativity is the debt level, although it is around half the fleet cost, but just over twice the EBITDA. As long as we do not see a sudden economic meltdown it is more than manageable.

Finally, it is interesting to note the difference between the USA and the UK where Ashtead has failed to achieve anything like the same levels of growth, although Sunbelt UK has done quite well over the past year or two. The difference in growth may be explained by the UK being a more mature market, a more competitive market, or a less disciplined market in terms of rental rates. It may also reflect the over concentration on rental rate by UK contractors, rather than the overall cost of renting equipment?

That said another sparkling result from Ashtead