Might Ashtead “do a Ferguson” and shift its primary market listing to the United States — and perhaps spin off its British division in the process?
Like its FTSE 100 peer, this diversified rentals company makes about 90 per cent of its profits in North America, having turned a relatively small acquisition there into a blockbuster success. And, like Ferguson, which is in plumbing and heating supplies, Ashtead has found trading conditions in the British market, where it operates the A-Plant tool and equipment hire business, tough amid pressure on construction markets and industry in general. There’s also an intriguing link in that Geoff Drabble, Ashtead’s 60-year-old former chief executive, was hired last year by Ferguson to be its new chairman.
Switching listings is an option. It would be no surprise if the board had informally floated the idea again this month, when Ferguson presented two alternatives to its investors, one of them being a primary American quote that would shunt it out of the FTSE 100.
As it stands, though, it is not an imminent prospect, not least because there is little guarantee that it would improve the valuation of the shares. Perhaps the disquiet the prospect caused among some of Ferguson’s shareholders may be playing its part, too.
It would be a shame for the London market to lose Ashtead. Founded in 1947 in the Surrey town whose name it bears, it began as Ashtead Plant Hire, renting out diggers and other tools to local businesses. It listed its shares in 1986. Four years later, it moved into the United States, buying Sunbelt Rentals, the first of several acquisitions that helped it to become America’s second biggest player. The group employs 18,800 people, is valued at £12.2 billion and in its most recent financial year made a pre-tax profit of just over £1 billion on revenue of almost £4.5 billion.
While Ashtead is best known for tool hire for construction jobs, it is actually more in the business of renting out heavyish kit that its customers are unlikely to want to own. It also has spread its tentacles into an impressively wide array of related areas, using smaller acquisitions to make it more diverse and less exposed to the construction markets. As well as renting out generators, air conditioners and cranes, it also supplies barriers, lights and temporary bridges, including to festivals and other events. It even refurbishes offices. In Canada, it recently spent £151 million buying William F White, which hires out studios and production equipment to the film and television industry.
Ashtead remains exposed to the building industry, of course, which, according to experts at Dodge Data & Analytics, is expected to be largely flat in the US this year and to shrink next year by 4 per cent, before gradually recovering to deliver growth of 5 per cent by 2023. Ashtead seems well placed to endure this temporary slowdown and growth of the overall American rental market is predicted by IHS Markit, the research group, to remain steady at 3 per cent or 4 per cent over the next four years.
This column is a fan of Ashtead, just over a year ago recommending that investors buy the shares when they stood at £19.04½. With the shares up 64p, or 2.4 per cent, to £27.65 yesterday, investors who followed the suggestion will be sitting on a gain of 44 per cent, before taking account of a dividend yield of almost 1.9 per cent.
Investors, perfectly respectably, could take profits at these levels. However, trading at 12.6 times Jefferies’ forecast earnings, the shares are not expensive and remain a solid “buy”.
ADVICE Buy
WHY Attractively diverse and impressively run business capable of enduring a US construction slowdown
CLS Holdings
While much of the commercial property world debates the twists and turns of market cycles, CLS Holdings has been quietly getting on with rejigging its rather unglamorous but tidily profitable portfolio.
The group was founded in 1992 by Sten Mortstedt, 80, a Swedish property entrepreneur who was executive chairman until 2016 and remains a director. Mr Mortstedt listed the company in 1994, but the free float, or base of easily tradeable shares, is limited at about 42.2 per cent, with him and his family owning the remainder.
The company owns and manages nearly 100 properties in Britain, Germany and France, which puts it in the three main powerhouses of Europe. Yet unlike many of its peers, CLS Holdings tends to own non-trophy assets, such as office blocks in suburban locations from London and Birmingham to Paris and Lille, Munich and Stuttgart.
This means that the group has been able to buy assets at attractive prices, reducing its debt interest bill by structuring each deal as a special purpose vehicle with borrowings secured against the entire block. Its approach has not stopped it from acquiring properties that regularly have a rental yield, or return against investment costs, of more than 5 per cent, which it tends then to improve by refurbishing and attracting higher-paying tenants.
Its portfolio has been valued at just under £2.1 billion, against which it has contracted annual rents worth more than £116 million.
Over the past two years it has been shifting its emphasis, selling offices in cities where it lacks scale and buying bigger blocks closer to good transport links and with the opportunity to be improved. For example, it has disposed of its offices in Britain situated outside London and the southeast, selling 19 of them to Elite Capital Partners, a Singaporean investment firm, late last year for £65 million in cash.
There is much to commend CLS Holdings, including its low vacancy rate, rising property valuation and an improving dividend yield of getting on for 3 per cent. The shares, off 4p, or 1.4 per cent, at 273p yesterday, are valued at 21.3 times Peel Hunt’s forecast earnings but justify a “hold”.
ADVICE Hold
WHY Portfolio has been honed but the shares are well valued
