Running a fleet hire business such as Ashtead is a virtuous circle, Geoff Drabble, the chief executive, argues. The more you invest in the equipment, the better service you can give your customers. You open new stores and continue to gain market share at the same time.
Meanwhile, Ashtead has had the advantage of recovering American and British construction markets. The company, therefore, is seeing organic growth at about twice the pace of the markets where it operates.
Its market share in the United States, where its Sunbelt operation provides 85 per cent of group revenues, has risen from about 4 per cent in 2010 to 7 per cent today. The business is coming from its smaller rivals, which can be outspent on investment in new equipment. In 2010, the smaller operators in the US had 61 per cent of that market; today, their share has fallen to 48 per cent.
Where things can go wrong is where investment is too high, debt rises, the market collapses in an economic downturn and expensive plant is sitting unused on the forecourt. Something like this happened in 2010. Then, the secondhand value of Ashtead’s fleet was about equal to its debt. Today, there is a £950 million gap between the two.
The company has been an astonishing performer over that period. In the year to the end of April, and in the fourth quarter, rental revenues were up by 24 per cent. The operational gearing effect of having more efficient outlets meant that pre-tax profits were up by 35 per cent to £489.6 million. Dividends for the year are raised in line with this, up 33 per cent to 15.25p. Ashtead is investing about £1 billion a year, including small bolt-on acquisitions, to feed that future growth. All this came despite two headwinds: a cold winter in the US and the slowdown in the energy market, which will have taken $15 million to $20 million off profits.
None of which has been missed by the market. The shares have pretty much doubled since the autumn of 2013, though they fell 30p to £10.97 on understandable profit-taking yesterday. At this level, they sell on 14 times earnings. This might look toppy for a cyclical business, but that virtuous circle suggests the shares are still a long-term buy.
Revenue £479m
Dividends 15.25p
MY ADVICE Buy long term
WHY Shares have come on a long way and the rating is high, but the prospects for further growth from the business model are still there
Stephen Stone, the chief executive of Crest Nicholson, says that conditions in the housebuilding industry are about as good as he has known in his career there.
Crest is focused on the prosperous south. It has been targeting new land in better-quality, or “aspirational”, locations, where prices might still have further to go, such as southeast London or the Chilterns, where its sixth division has been created.
Along with the rest of the industry, Crest is seeing positive movement on virtually every metric. Completions were up 8 per cent in the half-year to the end of April, while sales per site rose by 12 per cent and are among the highest in the industry.
The company reckons that there was some pre-election slowdown in sales at the top end of the market, but this has been made up since. Margins are ahead at 19.1 per cent, about as good as it gets in the industry, and pre-tax profits were 52 per cent higher at £58.3 million.
Forward orders rose by 26 per cent to £436 million, meaning that 80 per cent of this financial year’s output has been sold.
Crest is putting in place some punchy targets for 2019 — sales of £1.4 billion and 4,000 completions. One broker forecasts an 80 per cent rise in earnings by then. It is also moving into the private renting sector, building homes for institutions that want to invest.
None of this comes cheap. The shares, up 11½p at 556p, sell on about 2.4 times net asset value. The long-term growth is there, but anyone in since the autumn and looking at an 80 per cent price rise might consider taking some profits.
Revenue £333m
Dividend 6.4p
MY ADVICE Take profits
WHY Shares have come up a long way since the autumn
One could engage in any amount of philosophical debate over how many profit warnings the accident-prone APR Energy has generated since the temporary generation provider floated in September 2011. The latest one, though, is worrying because of the number of separate problems the company has flagged up.
APR made a decision to stick with its business in Libya last year, in exchange for better terms. In January it decided to pull out entirely, exiting Yemen, as well, in April.
The two countries typify the political risk that the business is exposed to, hiring out temporary power plant in some of the hairier parts of the world. The exit from Libya is proving more expensive than had been expected, mainly because of security costs.
Meanwhile, clients in countries such as Pakistan, Indonesia, Brazil and Argentina are taking longer than expected to sign new contracts, pushing some earnings into 2016. In addition, APR may end up in breach of its banking covenants, Throw in the departure of a senior executive and I can only repeat my view that the shares, off 89¼p at 259¼p, are best left alone.
$717m total write-offs in 2014
MY ADVICE Avoid
WHY APR’s record is too erratic to encourage investors
And finally . . .
An encouraging set of full-year figures arrives from Consort Medical, in what the company describes as a transformational year. Consort, which makes delivery devices for drugs, agreed the £230 million purchase of Aesica Pharmaceuticals in September. No update, though, on the subject that has mainly interested investors of late: the launch of the Voke smoking alternative being developed with British American Tobacco, which is expected to be announced by BAT by the end of the year.
Follow me on Twitter for updates @MartinWaller10
