Ashtead Group posts further growth as US housing boom continues

Ashtead Group has reported another set of impressive results as it continued to benefit from healthy demand for its products in the US.

The industrial equipment rental company revealed revenues jumped by just over $400million to $2.26billion in the first quarter, while pre-tax profits increased by 28 per cent to $527million.

Rental revenues in the US, where it derives most of its trade, also grew by over a quarter thanks to strong performances by its general tool business and specialty divisions.

This significantly offset a slight downturn in the UK market, where the firm’s trade was hurt by the demobilisation of Covid-19 testing sites, for which it had provided supplies like portable generators and traffic cones.

Organic growth contributed to the overwhelming majority of sales in the US, while only 6 per cent came from bolt-on acquisitions completed since May 2021.

Ashtead spent $337million buying new companies during the recent quarter, mainly on general tools businesses, but it also snapped up two film production equipment firms in the UK.

But, due to the significant volume of acquisitions, its net debt at the end of July was more than $2billion higher than at the same time last year.

The Surrey-based group, founded 75 years ago, benefited during the Covid-19 pandemic from a housebuilding surge coming at the same time that the volume of machinery available for sale has been in short supply.

On top of this, its trade was further boosted by the need for significant reconstruction following the 2021 hurricane season in the US.

This helped its shares become the best-performing FTSE 100 stock last year, expanding by 74 per cent, beating the likes of Meggitt, Glencore and chemicals manufacturer Croda International.  

Chief executive Brendan Horgan said: ‘We are in a position of strength and have the experience to navigate the challenges and capitalise on the opportunities arising from the market circumstances we face.’

Horgan faces a potential revolt over his prospective £6.6million pay package at the group’s annual general meeting taking place today.

Institutional Shareholder Services has advised investors to vote against the package, saying it was ‘not in line with market standards’.

Despite a strong first quarter performance, economic pressures and rising interest rates have weighed on Ashtead Group shares. They were down by 2.6 per cent to £42.02 in afternoon trading.

Ashtead also said that rising interest costs mean that adjusted pre-tax profits are set to be in line with prior forecasts.

But it does expect to see total rental revenues increase by 15 to 17 per cent this year, against previous guidance of 12 to 14 per cent, with forecasts upgraded in all territories.

Victoria Scholar, head of investment at interactive investor, said: ‘This is a strong set of top and bottom-line figures from Ashtead which appears to be doing its best to navigate the challenges from supply chain constraints, inflation, worker shortages, rising interest rates. 

‘Ashtead is a cyclical business that is subject to the ups and downs of the macroeconomy and the threat of a UK recession set to be a major headwind this year.’