Ashtead (LSE: AHT) is the one that got away. I owned it many years ago when the share price was significantly below what it is now. However, there is a silver lining for investors wanting to get in on the act and grab a slice of this company because I think it’s entirely possible right now to buy the shares at a good price, and I am personally tempted to dive back in myself.
Building itself up
Ashtead is an equipment rental company, operating in the US primarily, but also in the UK. Despite strong growth for many years, the shares now trade at a reasonable P/E ratio of 13, far lower than this time last year.
Last week, the company posted a 20% jump in full-year pre-tax profit, driven by continued strong performance in North America. In the year to 30 April, underlying pre-tax profit rose 17% to £1.1bn while revenue increased 18% to £4.1bn. Earnings per share rose by 33%.
Its revenue from rentals grew 18% during the year to £4.1bn, helping the company expand despite concerns of an economic slowdown, which would undoubtedly hit the construction industry hard – as it has done in the past. Indicating confidence in the future, the company proposed a final dividend of 33.5p, taking the full-year dividend to 40p a share, a 21% increase.
As the larger business within the group, what happens at Sunbelt, the US arm of the company, really matters. It saw revenue was up 20% in the year to $4.99bn, with rental-only revenue from the division 22% higher. At the A-Plant business in the UK, rental-only revenue was up 4% at £357m, while total revenue edged up 1% to £475m.
The rental group’s share price will be further supported by share buybacks. Ashtead has already spent £675m under the share buyback plan announced in December 2017 and has updated that it expects to spend at least £500m on share buybacks this year and next.
Money, money, money
St James’s Place (LSE: STJ) operates in a very profitable market: wealth management. As the population ages, the services it provides will only become ever more sought after as people look to make the most from their pensions and other savings.
The wealth manager’s 2018 annual results showed just why this company should be considered as a growth prospect. The full-year dividend rose 12.5%, operating profit was up 9%, and cash was up 10%. It had net inflow of funds under management of £10.3bn (2017: £9.5bn) and funds under management rose to £95.6bn (2017: £90.7bn). These increases are both good news for investors as it means St James’s is well positioned to make more money from its clients. Scale counts in wealth management and in the first quarter of 2019, its funds under management reached a record £103.5bn, again a good indicator of future success.
Given increased pension freedoms, an ageing population and the growth of the wealth manager itself, I think St James’s Place looks like a high-potential growth stock to hold for the next five years.
