Ashtead Group plc (AHT) Ordinary 10p

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HL comment (4 March 2025)
No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.
Ashtead reported revenue of $8.3bn over the first nine months, broadly flat on last year, with rental revenue up 5%. Revenue dropped 3% in the third quarter to $2.6bn.
Lower used equipment sales and higher costs meant underlying operating profit fell 3% to $2.0bn for the nine months.
Free cash flow of $858mn was an improvement on the $463mn outflow seen the prior year, with net debt improving from $11.2bn to $10.6bn.
There was no change to guidance, expecting 3-5% growth in rental revenue for the year and free cash flow of $1.4bn.
The shares fell 3.3% in early trading.
Our view
Having gone through a bit of a reset, Ashtead looks on much better footing. Performance is still a bit soft in places, but the fact recently downgraded guidance has been kept unchanged will provide some relief.
Comparable periods should ease from here, and Ashtead's more cautious investment approach, after arguably overspending into a slowing market, means more cash flowing through the business.
North America remains the real growth opportunity, and over the medium term, we still think the outlook is promising. There are several growth drivers here, ranging from the onshoring of supply chains to government legislation looking to expand infrastructure and chip manufacturing.
There’s been some softness in the selling price of second-hand equipment compared to inflated levels seen in the recent past. But nonetheless, rental prices are proving strong and are expected to stay that way. There are also some conflicting views around non-residential construction trends in the US (aside from mega-projects, this is a key market), but we think the data points to improving trends.
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 there’s still scope to snap up smaller players in the space.
Growing the speciality business is also a key strategy (things like scaffolding, flooring and air conditioning). These businesses present a varied income stream for Ashtead which should help provide a little more resilience during downturns.
As mentioned earlier, growth investment has been dialled back as the focus shifts from expansion to cash retention. That’s meant less borrowing and more cash, the net result being an improvement in the balance sheet which looks in decent shape.
We see Ashtead’s plan to shift its primary listing as a small positive, given the opportunity for better valuations and greater access for US investors. UK investors will still have access through a secondary listing on UK markets.
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 still see some upside to the current valuation. But there are no guarantees and missteps will be punished.
Environmental, social and governance risk
General Industrial companies are medium risk in terms of ESG but can trend up to the higher end of the spectrum depending on subindustry. The primary risks can include labour relations, emissions (either product or production-based), business ethics and product governance. Other concerns are waste and health & safety.
According to Sustainalytics, Ashtead’s overall management of material ESG issues is strong.
Ashtead reports on Scope 1 and 2 emissions, has initiatives in place to reduce emissions, and aligns these initiatives with its risk management programme. Within the last three years, the company's carbon intensity trend experienced a moderate decline. ESG reporting is strong, and executive pay is explicitly tied to ESG performance targets.
Ashtead key facts
Forward price/earnings ratio (next 12 months): 15.2
Ten year average forward price/earnings ratio: 15.2
Prospective dividend yield (next 12 months): 1.8%
Ten year average prospective dividend yield: 1.7%
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
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