Ashtead's expecting to report half-year rental revenue growth of 13%. Revenue towards the end of the second quarter was affected by lower levels of emergency response activity due to a quieter hurricane season. Underlying pre-tax profit growth is set to rise 5% to around $1.3bn.
The writers' and actors' strike has "significantly" impacted the group's Film and TV business in Canada, with smaller impacts in the US and UK which have continued into the third quarter.
As a result, full-year revenue growth guidance has been downgraded from 13-16% to 11-13%. Underlying pre-tax profit is also expected to come in below current market expectations of around $2.5bn.
The group said that despite these one-off events, end markets in North America remain "robust".
The shares fell 14.4% following the announcement.
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Our view
An unexpected profit warning took the market by surprise. Less natural disasters and the writers' and actors' strikes lasting longer than expected have dampened demand for the construction and industrial equipment that Ashtead rents out. That's led to full-year guidance being lowered and markets didn't react well to the news.
While a profit downgrade isn't what investors would have hoped for, the events that caused this one 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 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 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 when you consider the rental proportion of equipment in the UK is at 75%.
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.
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.
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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