The FTSE 100 index is home to some phenomenally high-quality companies. One that stands out to me is equipment rental firm Ashtead (LSE:AHT).
I first bought Ashtead shares many years ago for around £1.50. They’re now almost a whopping £55. I’m kicking myself for not keeping them this whole time. The share price is up by a considerable 96% in just a year, but even at the current price, I reckon there’s still much more upside left for this firm.
A FTSE 100 company on track
So what is Ashtead? It’s an international equipment rental company that trades under the name Sunbelt Rentals. Despite being a London-based FTSE 100-listed firm, 81% of its sales take place in the United States.
This is really appealing, in my opinion. It offers UK investors a great opportunity to gain exposure to the growing US construction market.
Upcoming construction boom
Infrastructure spending is expected to jump significantly over the coming years. The US government’s plan is to invest $1.2trn this decade in projects that include fixing highways, rebuilding bridges, and upgrading transit systems.
All of these could use Sunbelt Rentals’ diggers, cement mixers and construction tools. Sunbelt is the second largest player in the US market, slightly behind United Rentals. Much of the rest of the competition is small and fragmented. I reckon buying some of these smaller competitors is a great opportunity for Ashtead to gain further market share over the coming years.
Business picking up
Ashtead’s recent results were encouraging. And it’s great to see that its business is picking up. Overall, rental sales were up 15% in the fourth quarter compared with last year. Chief executive Brendan Horgan said “it completed a year of market outperformance across the business”.
Looking to the future, Ashtead expects its next leg of growth to come from its Sunbelt 3.0 initiative. It has given itself ambitious growth targets to increase market share in all geographical areas. For instance, it plans to increase Sunbelt locations in the US by 298 over the next three years.
Management sounds confident too. I would be so if I was running a business showing such positive momentum, a strong financial position and exciting new initiatives.
What could go wrong?
A word of warning, however. Ashtead is in a cyclical industry. So in the next US recession, spending for building projects could be pulled back. Potentially, this reversal could have a negative impact on its share price. Also, Covid-19 has resulted in increased uncertainty in its end markets. Given the nature of the pandemic, uncertainty could remain for many months.
Looking forward, management has highlighted emerging risks that could affect the business. This includes emerging technologies like autonomous machines.
A FTSE 100 stock I’d buy
That said, this past year has highlighted the firm’s resilient business model. It has adapted well to the challenges from the pandemic. That leaves me with confidence that it can successfully navigate through the crisis and beyond.
Weighing everything up, I’d be prepared to buy shares in this FTSE 100 equipment firm for my Stocks and Shares ISA.
