Ashtead Group (LSE: AHT) is one of those FTSE 100 companies that keeps delivering value. This is underscored by the rise in the company’s share price of around 190% in the past five years. In its recently released Q3 results, the construction equipment rental firm predicted full-year results ahead of its previous expectations, confirming to me that there is more value left in the stock.
Revenue, profits and earnings up
Group revenue increased by 25% over the nine months. (The company trades under the Sunbelt Rentals brand through networks in the US, Canada and the United Kingdom.) Over the same timeframe, its profit before tax rose by 33% and its adjusted earnings per share jumped by 30%.
There was a rise in net debt to EBITDA from 1.5x in 2022 to 1.6x over the nine months. However, the company invested $2.6bn in that period across existing locations and greenfield sites, compared to $1.7bn in 2022. Ashtead invested another $970m on 38 bolt-on acquisitions, up from $938m spent in 2022, to add another 120 locations in North America.
This investment is part of the Group’s strategic plan, Sunbelt 3.0. It aims to add 298 greenfield locations across North America, to a total of 1,234 locations by 2024. Ashtead’s long-term goal is to achieve a 20% market share in North America. It also plans to continue growing its share of the UK market.
US megaprojects and legislative boost
Ashtead’s chief executive officer, Brendan Horgan, highlighted that the US’s recent $430bn Inflation Reduction Act and $52bn CHIPS Act would strengthen an already robust construction market, flush with megaprojects.
Currently, 30% of total non-residential construction starts in the US are projects valued at over $400m compared to just 13% in 2000-2009. In total, around 200 projects with a value of over $400m are ongoing, with an average value $1.2bn. Additionally, approximately 300 projects with a value of over $400m are due to start in late 2022 or 2023, with an average value of $1.9bn.
Targeting the upside but protecting the downside
These projects require a rental supplier with scale, experience, expertise, breadth of product and financial capacity, said Horgan.
To capitalise on this projected market growth in the US, Ashtead expects capital expenditure for the full year to be ahead of its previous guidance, at $3.5-3.7bn. In 2023/24, plans are for gross capital expenditure of $4.0-4.4bn.
Ashtead believes that this should enable mid-teens rental growth revenue in the US. The company also expects full-year results ahead of its previous expectations.
There are risks in Ashtead’s operational space, of course. The main one is the cyclical nature of the construction market, which typically lags the general economic cycle by 12-24 months.
However, Ashtead is performing very well in strong markets, enhanced by the increasing number of megaprojects and recent legislation in the US. The company is also keeping leverage at the bottom of its target range.
Consequently, I am looking to buy the stock in the near term on price dips.
