No business would be crass enough to lament a quiet season for hurricanes and wildfires. For the FTSE 100-listed tool-rental business Ashtead, however, admitting that its revenues had been affected by “lower levels of emergency-response activity” gave its share price quite the kicking.
The Hollywood writers’ strike had an impact, too; a Canadian business owned by Ashtead hires power equipment to the big TV and film studios. All in all, a November profit warning plus a few red flags in December’s interim results weren’t the dull-but-reliable news that the City expects of Ashtead, historically one of the best-performing stocks on the market. A £1,000 investment in its stock in June 2003 would have returned, with reinvested dividends, an impressive £456,330 today, according to research by the investment platform AJ Bell.
Yet it is not too late to jump aboard. The US, where the company’s Sunbelt Rentals is the second-largest equipment-rental business, is the source of the growth. Ashtead is flourishing in the wake of President Biden’s infrastructure push, building up a pipeline of work in what it dubs “mega projects” — construction work worth at least $400 million (£315 million), where operators tend to prefer rental suppliers with scale and financial muscle, such as Ashtead.
In December, the firm flagged 499 projects either already under way or soon to begin, in areas such as solar and wind farms, collectively adding up to $620 billion of construction activity funded by both the private and public purse. The City reckons Ashtead’s revenues from mega projects will hit $2.1 billion by 2026, helping it to diversify from more traditional construction work.
Yet the firm’s shares — while recovering since a £44 nadir last April — are still trading well off the £64 peaks seen in 2021, now changing hands for about £52. The price-earnings ratio is cheaper than historic levels, at 14.
Will Kirkness, an analyst at Société Générale, has a £61 target price. “The shares look too cheap for the growth opportunity here,” he said. “The mega project tailwind is only just starting.” A burst of delayed film and TV work should provide a helpful boost, too, next year.
Uncertainty lingers over the trajectory of the US economy, and particularly its housing market, where Ashtead is deeply involved. But it has honed its own business well enough to weather storms — its profit margin currently stands at about 28 per cent in the UK and an impressive 48 per cent in the US.
For a long-term investment, Ashtead looks a steady bet; even in recession, it will lap up the effects of government stimulation plans. Buy.
