It takes more than a subordinate clause inserted after its name to explain what Ashtead does. While it is known as a tool hire business for the trades, this company actually does an awful lot more — and almost all of it in America.
Ashtead’s roots lie in Britain and in tools. Founded in 1947 in the Surrey town that gave it its name, it started out as Ashtead Plant Hire, supplying local builders and farmers with diggers, cement mixers and other kit needed to carry out smaller building jobs.
After listing in 1986, it made its big move into the United States in 1990, buying Sunbelt Rentals. Boosted by two subsequent acqusitions, Ashtead has grown to be the second largest player in the market, behind United Rentals. It operates in the UK under the A-Plant brand, the largest tool hire company over here but accounting for a little more than 10 per cent of group revenues. The rest comes from Ashtead’s activities through Sunbelt, predominantly in the US but also in Canada.
Ashtead is a constituent of the FTSE 100 with a market value of just over £9 billion. It has resisted moving its listing to the US, in part because of the associated costs, although it does issue bonds to dollar buyers and its share register in London increasingly has attracted the interest of American institutions.
The group’s activities in the US, though still pegged to the rentals markets, are truly wide-ranging. It works in disaster recovery, hiring out its fleets of cranes and diggers to contend with hurricane damage. It is involved in temporary power, renting generators to events. It rents out the boards laid on the ground at festivals, as well as the lights, barriers and rigs. And, as well as fitting out office blocks, it has moved into building temporary bridges and trenches for building sites.
This diversity, which is steadily growing through small bolt-on acquisitions, means that while Ashtead is exposed to the cyclicalities of the American construction market, it has made itself a wider play. Meanwhile, of course, under President Trump, US construction remains on a roll, albeit against the backdrop of an economy showing signs of coming off the boil.
Nevertheless, overall rental revenues in the US are forecast to grow by 5 per cent a year between now and 2022, according to IHS Markit, the data provider, with Ashtead locked into an increasing trend among American businesses to hire rather than buy the equipment they require.
Not only is the group benefiting from the president’s tax-cutting drive, but the additional wealth that this is creating for American industry as a whole is further bolstering orders. Revenues at Sunbelt US grew by just under 22 per cent over the nine months to the end of January against the same period the previous year and its margin is a very healthy 49.9 per cent.
There is a minor uncertainty in that Geoff Drabble, 59, is leaving the chief executive’s job that he has held for just over 12 years, although his replacement, Brendan Horgan, 45, has been chief operating officer for a year and is the boss of Sunbelt US. It’s hard to fault that for succession planning.
Ashtead’s shares were pummelled in the stock market sell-off late last year, shedding just under 35 per cent of their value between a peak of £24.37 in late September and the end of December, when they touched £15.86½. The stock has since come back somewhat since then, although the shares closed 30p, or 1.6 per cent, down at £18.91½.
Trading at only 9.5 times JP Morgan Cazenove’s forecast earnings for next year and for a likely yield of 2.3 per cent, the shares look like a bargain.
Advice Buy
Why Highly diverse business locked in to US growth whose shares look very good value
Alfa Financial
There was one number in Alfa Financial’s annual results last week that spurred investors to change their minds. In a set of comparable performance figures that in most areas were going in reverse, the software group noted that its top-line revenues had grown by 16 per cent during the second half of last year compared with the first.
Along with talk of an important new customer and progress in a delayed contract, the implicit suggestion that Alfa was beginning to emerge from a truly dreadful year in better shape was enough to send the shares up by just under 20 per cent.
The stock has continued to trade higher in a minor case of euphoria that has added nearly £113 million to the market value in less than a week. The shares closed up another ½p, or 0.2 per cent, at 160p yesterday.
Alfa started life as CHP Consulting. It was floated in May 2017 shortly after rebranding. Its speciality is the provision of software to the asset finance industry. This means that it supplies state-of-the-art systems to banks that lend to those wanting to buy large machinery, although its customers also include companies, such as car manufacturers, that provide loans to their customers. It reckons that its addressable market is worth $3 billion to $4 billion a year.
To the frustration of the stock market, Alfa’s revenues are unpredictable. While the contracts, when they come, regularly are worth £10 million or more and carry recurring maintenance revenues, they can take a year and more to seal.
Delays with a couple of customers dented the shares last year, but signs that several contracts were coming to fruition boosted them last week. While Alfa’s full-year revenues and profits were sharply lower, the increase in the number of late-stage negotiations augurs well for a forthcoming year of growth.
Alfa pays no dividend and is not thought likely to offer one before 2022, at the earliest. The shares, issued at 325p, are way under water for what was supposed to be a high-growth stock. Yet a rating of 20.2 times Barclays’ forecasted earnings, for a company that looks poised to deliver, is tempting.
Advice Buy
Why A speculative play but will reward if it delivers
