Ashtead has reported first-half revenue up 16% to $5.6bn, with rental-only revenue growing 13% - both when ignoring exchange rates. In the US, the largest region, rental revenue benefited from both higher rates and volumes.
Operating profit rose 12% to $1.5bn, slightly lagging top-line growth due to higher financing costs driven by both increased debt levels and higher rates.
Higher capital expenditure meant the free cash outflow rose to $355mn and the group spent $705mn on 16 bolt-on acquisitions over the half. As a result, net debt rose from $8.4bn to $10.6bn - still within its target range.
Recently lowered guidance was reiterated, with rental revenue expected to grow 11-13% over the financial year. Ashtead said its end markets remained strong.
An interim dividend of 15.75 cents was announced, up 5%.
The shares fell 4.3% in early trading.
View the latest Ashtead share price and how to deal
Our view
Ashtead's recent, and unexpected, profit warning took the market by surprise. Fewer natural disasters and the writers' and actors' strikes lasting longer than expected have dampened demand for the construction and industrial equipment it rents out. Markets may not have reacted well, but we're pleased to hear management remains upbeat about the underlying demand picture alongside what were record half-year results.
We're fairly optimistic that the events that caused the downgrade are likely to be one-offs and the impacts should be contained to the current financial year. North America remains the real growth opportunity for Ashtead, and over the medium term, we still think the outlook is promising. There are several growth drivers here, including the onshoring of supply chains to government legislation looking to expand infrastructure and chip manufacturing.
Ashtead's scale and expertise are proving valuable, and the group's taking around 30% market share of these mega projects in the US. The bigger players have an advantage in the fragmented industry, and the balance sheet's being flexed to snap up smaller players in the space.
We're also supportive of the rental model, which allows customers greater flexibility and helps to counter ongoing supply-chain issues. The proportion of equipment owned by rental companies has increased dramatically and, last we heard, Ashtead believes the 55% seen in the US has room to grow - we're inclined to agree.
Debt has risen as investment in expansion continues, but the balance sheet is in reasonable health and means the group can invest to meet the extra demand - opening new stores, expanding its rental fleet and pursuing its strategy of bolt-on acquisitions, where appropriate, too.
Construction is a cyclical business, meaning demand tends to ebb and flow alongside economic conditions. In the key US market, recession odds have been decreasing but the chance of lower economic output remains very much intact - even if there's not technically a recession in the region.
Longer term, we're supportive of the sector with several structural tailwinds underway and we prefer larger-scale names like Ashtead. We continue to expect growth in the top and bottom lines, and the punished valuation off the back of the guidance downgrade looks overdone in our view. That means we see potential upside from here, but prepare for wobbles along the way, and there are no guarantees.
Ashtead Group key facts
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