Rental equipment provider Ashtead Group’s share price rose on Tuesday after it updated guidance for the full year.
At £50.80 per share the FTSE 100 firm was last trading 1% higher on the day.
Should investors snap up shares in Ashtead following impressive recent trading?
Sales and Profits Soar
In its trading update for its second quarter Ashtead said that revenues jumped 28%, to $2.5bn. This meant sales in the six months to October were up 26% year on year at $4.8bn.
The company witnessed “ongoing momentum in robust end markets,” it said, a result that pushed adjusted pre-tax profit in quarter two 28% higher to $688m. First-half profit was up by the same percentage, at $1.2bn.
Ashtead invested $1.7bn of capital on existing locations and greenfield sites during the first half. It also spent $609m on more than two dozen bolt-on acquisitions. This spending added another 72 locations to its core US business.
A strong performance encouraged Ashtead to lift the interim dividend 20% from last year, to 15 US cents per share.
Net debt at the business rose to $8.4bn at the end of October from $6.4bn at the same point in 2021. Its net debt to EBITDA ratio, meanwhile came in at 1.6 times, inside its targeted range of 1.5 times to 2 times.
“A Position of Strength”
The FTSE 100 business said that “we are in a position of strength and, with increased market clarity, have the operational flexibility to capitalise on the opportunities arising from the market and economic environment we face, including supply chain constraints, inflation and labour scarcity, all factors driving ongoing structural change.”
It added that “we now expect full year results ahead of our previous expectations and the board looks to the future with confidence.”
What The Analysts Say
Commenting on today’s results, Matt Britzman, equity analyst at Hargreaves Lansdown, said that “Ashtead’s been able to brush aside inflationary pressures and deliver a strong first half with top and bottom-line growth.”
He said that its largest market of the US “is benefiting from a host of fiscal policies aimed at improving infrastructure and supply chain resilience,” adding that “Ashtead’s scale and expertise should place it well to be a key supplier.”
Why I Bought Ashtead Group Shares
Past performance is not always a reliable indicator of the future. But I bought Ashtead shares for my own portfolio in autumn 2019 following its strong performance in previous years. The rental equipment giant was the best-performing UK stock across both the FTSE 100 and FTSE 250 during the 2010s.
In June 2022 I increased by stake in the business, too, following heavy share price weakness.
Ashtead has spent a fortune in the past decade-and-a-bit to build its market position in the US. Its Sunbelt division there commanded a market share of 11% as of the end of 2021, more than double its share 10 years earlier.
Its successful expansion drive has delivered strong profits growth and exceptional shareholder returns in that time. And it has plenty of cash with which to continue building its position in a highly-fragmented marketplace.
As people increasingly decide to rent equipment rather than purchase, Ashtead is in a position of increasing strength. Yet despite this the company’s shares look quite cheap on paper.
Today it trades on a price-to-earnings growth (PEG) ratio of 0.6 for this fiscal year. A reading below 1 indicates that a stock is undervalued. At current prices I think Ashtead is one of the best FTSE 100 value stocks out there.
Royston Wild owns shares in Ashtead Group.