Ashtead shares prove resilient despite 38% decline in first quarter profits

Industrial equipment rental company Ashtead Group plc (LON:AHT) saw its shares rally during Tuesday morning trading, in spite of what might have been viewed as a bad but ‘not as bad as it might have been’ first quarter.

The company boasted that its 7% year-on-year decline in overall revenue, and 8% year-on-year fall in quarterly rental revenue – from £1.17 billion to £1.08 billion – illustrated its impressive resilience during the pandemic.

However, with underlying profit before tax falling by 35%, and profit before tax falling by 38% during the same period year-on-year – from £305 million to £192 million – there is only so much positivity that can be drawn from Ashtead’s first quarter results.

Further, the company’s EBITDA fell by 14% during the same period comparison, from £627 million to £548 million, while its quarterly operating profits fell from £358 million to £249 million.

The situation was equally bleak for the company’s shareholders, with underlying earnings per share falling 33% year-on-year frm 51.4p to 34.7p, and EPS on a statutory basis falling 35%.

Although, there were some glimmers of hope looking ahead. First, the company announced that it had resumed its greenfield opening programme with three openings during the first quarter. Second, the company booked ‘record’ cash flow despite the pandemic, with free cash flow during the first quarter increasing from £161 million to £447 million year-on-year.

Ashtead response

Commenting on what he viewed as a period of impressive resilience in trading, company Chief Executive Brendan Horgan stated:

“In these challenging markets, the Group delivered a strong quarter with rental revenue down only 8% at constant exchange rates.  This resilient performance illustrates the successful execution of our long-term strategy, which we embarked upon after the last recession, to broaden and diversify our end markets and strengthen our balance sheet. This positioned us to capitalise on our ever increasing scale, while remaining agile, particularly during these unprecedented times.  The actions we took to optimise cash flow, reducing capital expenditure and operating costs, resulted in record free cash flow for the first quarter of £447m (2019: £161m) contributing to reduced leverage of 1.8 times compared to 1.9 times at year end.”

“Looking forward, the strength of our business model and balance sheet positions the Group well in these more uncertain markets.  Assuming there is no significant COVID-19 second wave leading to major market shutdowns, like we experienced earlier this year, we expect full-year Group rental revenue to be down mid to high single digits when compared with last year on a constant currency basis.  The benefit we derive from the diversity of our products, services and end markets, coupled with ongoing structural change, enables the Board to look forward to a year with free cash flow in excess of £1bn, continued strengthening of our market position and the medium term with confidence.”

Investor notes

Following the update, Ashtead shares rallied 1.89% or 51.00p, to 2,744.00p a share 08/09/20 11:00 GMT, with markets likely factoring in the possibility of more bleak-sounding quarterly fundamentals.

This is shy of the company’s year-to-date high of 2.802.00p per share, but ahead of analysts’ consensus 12-month target of 2,650.00p a share. The current price also represents a 20.19% growth from its price one year ago on this date.

The Group’s p/e ratio stands at 15.31, its dividend yield is 1.48%.

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Jamie Gordon
Senior Journalist at the UK Investor Magazine. Also a contributing writer at the Investment Observer, UK Property Journal and UK Startup Magazine. Postgraduate of King's College London with a specialisation in Business Ethics. Interested in Development Economics and David Hume.