Ashtead Group (LSE: AHT) has been one of the FTSE 100’s biggest casualties over the past few months.
The sell-off that set in during early October, as market participants fretted over the impact of Federal Reserve rate hikes and American/Chinese trade wars on the US economy, has continued to smack Ashtead in the run-up to Christmas.
The rental equipment specialist fell to 15-month lows on Monday and although it’s bounced from those troughs it remains a whopping 31% lower from the record peaks of £24 per share struck at the start of October. I’ve argued that this weakness makes Ashtead one of the best bargains on the Footsie, and latest trading details have reinforced my bullishness.
Yesterday Ashtead declared that group rental revenues boomed 18% between May and October, to £2.07bn, a result that powered underlying pre-tax profit 19% higher to £536.9m. With the company “performing well in supportive end markets,” as chief executive Geoff Drabble commented, the business said that it now expects results for the 12 months to April to beat its prior expectations.
Half-time dividend hiked ~20%
I’ve long been enthusiastic over Ashtead and particularly so because of its ultra-progressive dividend policy which has seen full-year payouts treble during the past half a decade, culminating in last year’s 33p per share total reward.
It’s been a brilliant profits generator in years gone by as well as a cash machine. Its latest market update shows that nothing has changed in either respect — as well as enjoying that fresh profits boost in the first half, free cash flow remained at a strong £22m, and this allowed its net debt-to-EBITDA figure to remain well within its target limit of 2x, at 1.8x.
In response to this, Ashtead hiked the interim dividend by an astonishing 18% to 6.5p per share, and this lends extra credibility to City projections of a huge increase in the full-year payout. For the 12 months to April 2019, a 37.4p payout has been forecast, a figure that yields 2.2%. And things get better for next year, the 40.7p predicted dividend yielding 2.4%.
Too cheap and too good
Analyst forecasts also suggests that those aforementioned fears over the health of Ashtead’s key US marketplace are overdone. The group’s bottom line has swelled by double-digit percentages for many years now, and further chubby rises of 31% and 14% are predicted for fiscal 2019 and 2020 respectively.
Even if economic growth in North America slows in the next year or two I’m confident that the vast sums it’s paying to expand its geographical reach and its product ranges should keep profits spiralling skywards. It forked out £362m on bolt-on acquisitions during the first half alone, while organic investment soared above £1bn for the first time.
Ar current prices Ashtead trades on a dirt-cheap forward P/E ratio of 10.1 times, a figure that massively overstates the possibility of earnings growth grinding to a halt. At these prices I reckon it’s a hot buy today and one of those shares to cling on to well into the next decade.
