Ashtead has been one of the FTSE 100’s best-performing stocks over the past decade and has consistently produced very respectable growth.
While Ashtead delivered 19% revenue in the first quarter, it missed some analyst expectations and shares fell on Tuesday. Ashtead shares were down 1% at the time of writing on Tuesday but are 14% year-to-date having staged a rally over the summer months.
Over the past ten years, Ashtead has been the second-best FTSE 100 performer gaining 725%. Persimmon is the top performer with a 1,380% gain.
Ashtead’s success has been a result of strong growth in the US where revenue grew 22% in Q1 2023. Group revenue rose 19%.
Ashtead continued to be supported by US infrastructure projects but strikes across the film industry hit their media-focused operations.
“With Ashtead having a long history of doing well, investors are naturally going to expect a superior performance every single quarter. When expectations are elevated, the construction equipment provider will ultimately disappoint the market unless everything is firing on all cylinders. That’s exactly what we have seen following its latest results, which contain pockets of bad news,” said AJ Bell investment director Russ Mould.
“The impact of rising interest rates is starting to bite. Adjusted pre-tax profit ‘only’ grew by 11% in its first quarter, with Ashtead saying the lower rate of growth was down to borrowing more money and having a higher cost of servicing those debts.
“Ashtead normally benefits from the vibrant TV and film industry in Canada, renting equipment for productions that can go on for weeks or months. The writers’ and actors’ strikes have therefore been problematic for its business as productions have been shut down and earnings visibility is now uncertain.
“Furthermore, the UK operations continue to be weak. While they are only a tiny contributor to group profit, the fact it can’t seem to lift them out of a rut has led some people to suggest that Ashtead may be losing its magic touch. Margins are falling, higher rental rates haven’t been enough to offset inflation on its cost base, and it hasn’t got a repeat of the lucrative work from the Department of Health which helped its earnings last year.
“Despite the pockets of bad news, Ashtead still delivered a record performance overall, with the type of revenue and profit growth that most companies can only dream about.”