The government is zeroing in on buildings as big emitters of carbon dioxide with new regulations to ensure that they are energy-efficient and use low-carbon sources of heat. However, regulators have not yet tackled the issue of carbon emitted during construction. According to John Alker, director of policy at the UK Green Building Council, that is a missed opportunity.
In his view, “we need to be radically rethinking how we construct, use, adapt, dismantle and re-use buildings and materials. Construction clients can drive this change throughout the supply chain — and regulation can support this.”
Despite the lack of regulations, a lot of building companies are promising to cut emissions, driven in part by their largest customers demanding that they do exactly that. Many are discovering that renting equipment, rather than owning it, can play a big role in helping them to meet increasingly ambitious sustainability targets.
That is because carbon emissions associated with, say, a digger are far lower per use if that digger is used regularly. Greater use requires less diggers worldwide, which cuts down on the use of the world’s resources. Using exactly the right equipment for the job also has been shown to reduce emissions.
Rental companies have greater scope to invest in the most up-to-date and efficient technology with lower emissions; and they do a good job of maintaining their equipment and therefore extending its life. At the end of the equipment’s life, they are well set up to ensure proper reuse or recycling of machine parts.
Speedy Hire
Russell Down took over as chief executive of Speedy Hire only three months after joining the company as finance director in 2015. His predecessor issued a profit warning — sending the shares down almost 30 per cent — and resigned, leaving Down to pick up the pieces.
The general consensus is that he has done a good job. Under Down’s leadership, Speedy has broadened its customer base, so that as well as supplying aerial platforms and other heavy equipment to construction giants such as Morgan Sindall and Costain, Speedy now provides jackhammers, drills and scaffolding to the man in the van you might call for help with DIY.
With the government committed to spending more than £600 billion on infrastructure over the next five years, Speedy’s biggest customers are likely to be busy. As the company that provides the picks and shovels, Speedy largely swerves the risk associated with huge, high-profile contracts that can be beset by delays, cost overruns and political wrangling, while benefiting from the associated boom in construction.
At the other end of the business, small construction companies are run off their feet as they scramble to catch up with work delayed because of lockdowns and a flood of demand from people fed up with the state of the four walls they were trapped within for much of 2020.
Andrew Nussey, an analyst at Peel Hunt, says that surge in demand and trade press warnings of a shortage of equipment mean that rental companies could start raising prices, something that they have not been able to do for several years.
Speedy Hire has ploughed money into technology, developing a customer app and using machine-learning to analyse years of data and improve the way it manages its fleet to boost efficiency. It has modest levels of debt — less than half the level of its earnings — and more than £140 million it can draw upon, meaning that it can respond to rising demand quickly and can keep its eye open for acquisitions. With growing private equity interest in the sector, Speedy may be considered an acquisition target itself, too.
Large contractors increasingly are shifting to renting equipment rather than owning it because of the associated reduction in emissions. They are demanding that their suppliers meet strict environmental, social and governance criteria, which Speedy has been quick to do. It is investing in solar-powered and hybrid equipment, as well as generators that run on vegetable oil rather than diesel, and is shifting some of its delivery fleet over to electric. Speedy is not yet particularly good at shouting about its ESG credentials, with a few pages in fairly opaque language dedicated to sustainability in its latest annual report. This will improve in future, which should help to attract some ESG-focused investors and drive the share price higher.
The shares are changing hands for 70p, around 16 times Nussey’s forecast for earnings this year, which looks like a good price for a well-run business in a sector driven by a long-term shift to sustainability.
ADVICE Buy
WHY Provides the picks and shovels for infrastructure boom
IMPACT Efficient use of right kit leads to lower emissions
Ashtead
The prime minister may have arrived there on an aircraft, but the organisers of the G7 gathering of political leaders in Cornwall were careful to ensure that it was a carbon-free event powered by renewables. Ashtead helped by providing solar-powered light towers, electric bikes and all the other kit required for an international jamboree, from fencing to accommodation to power generation to flooring.
Renting equipment for events forms part of Ashtead’s speciality division, which also includes television and film studios and emergency response equipment. This makes up around half of its revenues and helps to offset declining sales during a construction downturn or a recession.
For now, though, construction is on the up and Ashtead looks set to benefit. More than 80 per cent of its sales are in the United States, where President Biden is pushing through a $1 trillion infrastructure bill. Investors have responded accordingly and have pushed Ashtead’s shares up to a heady £54.04, more than 30 times forecast earnings for this year and double the valuation of its nearest competitor, United Rentals, of the United States.
ADVICE Hold
WHY Wait for infrastructure spending to start
IMPACT Cutting emissions from US construction sector
