Ashtead reported full-year revenue of $9.7bn, up 24% when ignoring the effect of exchange rates and broadly in line with analyst expectations. Growth was driven by the US and Canada, where both regions saw higher rates and volumes.
Underlying operating profit rose 29%, ignoring exchange rates, to $2.6bn. Higher costs were more than offset by revenue growth, and margins rose from 25.8% to 27.3%.
Capital expenditure, net of disposals, was $3.1bn compared to $2.0bn the prior year. The group acquired 50 bolt-on acquisitions as the North American expansion continued. Increased spending impacted free cash flow, which fell from $1.1bn to $0.5bn. Net debt rose from $7.2bn to $9.0bn, 1.6 times cash profit, towards the lower end of the target range.
The Board has proposed a final dividend of 85 cents, taking the full year to 100 cents - up 25%. A new buyback programme was launched in May, of up to $500m over the year to April 2024.
Ashtead has guided to rental revenue growth of 13-16% over the coming year, expecting to generate $300m in free cash flow.
The shares fell 1.2% in early trading.
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Our view
Ashtead, which rents construction and industrial equipment, posted a strong set of full-year results which paint a picture of robust and growing end markets. Results were broadly in line with expectations and after a recent run-up in the share price, there's no obvious catalyst for a short-term move higher and expectations for the coming year are likely to remain largely unchanged
Nonetheless, the medium-term looks promising as the ongoing expansion into North America looks to be yielding results, both the US and Canadian divisions benefited from both higher rates and volumes. There are several growth drivers in the region, from the onshoring of supply chains to government legislation looking to expand infrastructure and chip manufacturing.
Ashtead's scale and expertise should place it well to be a key supplier for large-scale projects. The bigger players have an advantage in the fragmented industry, and the strong balance sheet's being flexed to snap up bolt-on acquisitions 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 when you consider the rental proportion of equipment in the UK is at 75%.
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.
There are challenges though, not least of which are increasing costs. Ashtead's been able to pass these on through rent rises, but it's still having a dampening effect on margin growth.
There's also a very real recession risk to consider. 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 see the potential for growth in the top and bottom lines, but recent market moves have been positive - that's pushed the valuation back above the longer-term average. It's choppy out there, so prepare for some wobbles.
Ashtead Group key facts
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