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Ashtead... United Rentals downgrades appear ominous

By Matt Earl (The Dark Destroyer) | Wednesday 18 February 2015


Disclosure: The author has a short position in one or more of the shares mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Pursuant to a series of downgrades over recent months to United Rentals (URI US, market cap $8.7 billion), I shorted a little Ashtead (AHT) - with a market cap of £5.5 billion. After all, one would imagine that those closer to home know the score.
 
United Rentals and Ashtead consensus 2016 sales forecast
Source: Bloomberg
United Rentals and Ashtead consensus 2016 EBITDA forecast
Source: Bloomberg
United Rentals and Ashtead consensus 2016 EPS forecast
Source: Bloomberg
United Rentals and Ashtead consensus forward P/E
Source: Bloomberg
United Rentals and Ashtead longer term share price performance, 
currency adjusted to Sterling

Source: Bloomberg
United Rentals and Ashtead shorter term share price performance,
currency adjusted to Sterling

Source: Bloomberg
Ashtead six month share price performance
Source: Bloomberg

Matt Earl, The Dark Destroyer, writes on his own blog HERE and is speaking at UK Investor Show on April 18 in the bears session with Evil Knievil, Lucian Miers, Tom Winnifrith and Kevin Ashton - details and tickets HERE


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More on AHT


Comments

3 comments

  1. Just looking at this ahead of the results this week. According to their sunbelt presentation they have 10% exposure to oil and suggest about 70% of that is to producing rather than further upstream. I’m hearing United Rentals is nearer 15-20%. I like the general concept but struggling with conviction. Can’t get my head around their cash flow. The way it is presented in the sunbelt presentation looks fairly OK at least at a CFO level if not the FCF level. But the latest RNS statement is entirely different and shows about £65m Net CFO which is pretty dire. Haven’t gone to town on this but any pointers appreciated…

  2. Matt

    Phew!

    Your heavy hitting with some great bearish analysis on some very recent ‘darlings’ of the market. Your articles are certainly grabbing my attention and your prognosis on Tungsten was an outstanding piece of work.

    Displaying this degree of in depth research, I’m beginning to see why even the most bullish fan may start wilting before the dark destroyer.

  3. ashtead’s cash flow is excellent: it’s funding its impressive North American expansion with debt, and the earnings far outweigh the interest.

    the problem is that for all its great opportunities to grow market share, Ashtead is at heart a cyclical, and at some point in the future you know it’s going to be sat there with the debt still to service and a large rental fleet not earning very much.

    Ashtead, United Rentals, and the American Rental Association all say that the current up cycle still has years to run; I’ve been happy therefore to hold through the periodic 20% dips and even top up. So far it’s always recovered, but I guess that if you were to stay in for too long then one day the SP’s going to go down and not come back up again :(

    Fingers crossed for Tuesday.


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