Ashtead shares soar as investors cheer dividend hike and surge in profits after rentals of its industrial equipment pick up
- Ashtead shares are a staple of UK investment funds and pension portfolios
- Rental revenues in quarter to April rose 5% to around £1.1bn
- Pre-tax profits more than doubled to £220m in the period
- The group proposed a final dividend of 35p, taking the full year total to 42.15p per share, a 3.7% increase on last year
Millions of savers and pensioners will be happy to hear that equipment rental firm Ashtead has raised its dividend after profits more than doubled in the last quarter of its financial year.
The FTSE 100 listed group, which is often a staple of UK investment funds and pension portfolios, said it ‘returned to growth’ in the three months to the end of April.
Rentals of its equipment accelerated as it picked up extra work supporting UK hospitals and testing centres, with the company saying it benefited from its business being very diverse.
A diverse business: Ashtead is the UK’s biggest supplier of traffic cones
Ashtead is the UK’s biggest supplier of traffic cones, but also organises the perimeter fence and crowd control at Glastonbury festival and rents out construction equipment and tools such as diggers.
Rental revenues in the quarter rose 5 per cent to around £1.1billion – or by 15 per cent at constant exchange rates – while overall revenues hit £1.3billion, an increase of 13 per cent. Pre-tax profits jumped to £220million, from £98million a year earlier.
That means that for the whole year to the end of April, total revenues fell by just 0.4 per cent to £5billion, while pre-tax profit fell 4.8 per cent to £936million.
In light of the improvement in the final quarter, the group proposed a final dividend of 35p, taking the full year total to 42.15p per share, a 3.7 per cent increase on last year.
Shares in Ashtead fell at the open but were up 3.3 per cent to £52.54 by 12:15pm on Tuesday. They have risen by 45 per cent this year as it managed to weather the pandemic better than other firms thanks to the diversity of its services.
Chief executive Brendan Horgan said: ‘Our business can perform in both good times and more challenging ones.’
And added: ‘The benefit we derive from the diversity of our products, services and end markets, our investment in technology and ongoing structural change, enhanced by the environmental and social aspects of ESG, enables the Board to look to the future with confidence.’
Back on track: Ashtead, which rents out equipment like diggers, said it ‘returned to growth’ in the three months to the end of April
The company said that in the UK, it raked in rental revenues of £362million over the year, up from £349million the year before thanks to more work for the Department of Health, which accounted for around a third of its UK revenues.
The company’s biggest market, however, is the US, where it generates about 86 per cent of its turnover.
There, rental revenues from its Sunbelt arm fell by ‘only’ 2 per cent to $3.98billion, compared to $4.07billion the year before, which the company said it represented a ‘strong market outperformance’ as the pandemic continues to impact the construction business.
Ashtead’s management seems confident though, which is proved by the fact that last month it launched a £1billion share buyback and pledged to supplement that with a sixteenth consecutive increase in the annual dividend.
The company also said that it had not made any staff redundant and had not claimed any Covid financial support from governments.
Shares in FTSE 100 listed Ashtead have risen by 45 per cent this year
‘What is good for America is good for Ashtead, as four-fifths of the company’s sales and nine-tenths of its profits are generated Stateside, and a recovery in the US economy looks to be driving a revival in the FTSE 100 firm’s fortunes,’ said AJ Bell investment director Russ Mould.
‘Ashtead’s American Sunbelt operation will benefit from higher economic output in the USA and especially from more activity in key end markets such as construction, while even the oil and gas sector is looking a lot less bad than before,’ he added.
Nicholas Hyett, an equity analyst at Hargreaves Lansdown, also believes Ashtead is well placed to benefit from large government infrastructure works in 2022.
Neil Shah, director of research at Edison, added: ‘As the pandemic continues to impact large portions of the construction business across Ashtead’s key markets of the USA, Canada and the UK, a resilient business model and balance sheet have meant that overall business impact has remained low.’