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Ashtead continues to clean up
By Chris Bailey of Financial Orbit | Tuesday 12 September 2017
Disclosure: I own shares in one or more of the stocks 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.
I have got to credit the management of industrial/construction rental machinery Ashtead (AHT) for their sensitive words about the hurricanes that have battered some of the American southern states in September. Clearly this is not a time for anything other than expressing sympathy for those impacted but - with a commercial hat on - over the balance of this year and throughout 2018 I would imagine a business renting industrial and construction machinery is going to have a bunch of opportunities. That's for the future though and today's first quarter results continue the excellent progress I noted when i last wrote about the stock three months ago here
Back then I observed good progress and today's numbers show a 16% year-on-year rise in revenues and a 20% rise in operating profit - which even included some good progress at the company's UK division A-Plant (once again showing that the current challenges of perma-dogs like HSS (HSS) is very much self-induced). Of course cashflow is always King and on this front the pre-acquisitions free cash flow generation was materially better than last year. That current 2.5% dividend yield is nicely covered, don't worry especially after a debt refinancing the company undertook over the summer at those ultra-cute bond yield levels currently on offer.
Now I said pre-acquisitions and Ashtead's growth story over the last few years in the US has been both organic (new kit and new plant locations) as well as buying up smaller peers and applying Ashtead's processes and related. The company's presentation today included a good chart showing uplift from these deals which makes perfect sense to me - a big rental business can cut better purchasing terms for kit and by having a more cohesive distribution system can appeal to a wider range of customers and flex accordingly to their demands.
On the conference call management discussed some of the attractive multiples they could buy these smaller businesses at and given the balance sheet is under good control, I say carry on if they can find them. Certainly there is a lot of America for their Sunbelt business to continue to conquer.
Last time I talked about buying the stock 'on a bad day' below 16 quid a share which is equivalent to a pre-teen EV/ebit multiple which strikes me as attractive all things considered. In a potentially lumpy broader market that still works as a level for me. If you are a holder though I would continue doing so. No winds of change at Ashtead - the growth profile of the business continues.
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