This top FTSE 100 share turned £5k into £2m+! Should I invest in its spin-off?

Ashtead Technology (LSE: AT.) appears to be following in the footsteps of its former FTSE 100 parent. Does this make it an automatic buy right now?

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Ashtead has been a truly incredible FTSE stock to own over the past two decades. In September 2003, shares of the equipment rental firm were around 15p each. Today, I’d have to fork out £56 for just a single share.

To put that in context, a £5k investment would have bagged me, strangely enough, 33,333 shares. Those would now be worth approximately £1.86m. Including dividends, my total return would be well over £2m!

Clearly, this is the stuff of dreams for investors, and why I devote around half my portfolio to growth stocks. Which brings me onto Ashtead Technology (LSE: AT.). This is a subsea equipment specialist that once belonged to Ashtead, but was spun off and went public in late 2021.

Here’s why I think this growth share could become another huge long-term winner.

Raising guidance

Ashtead Technology provides equipment, advanced underwater technologies, and support services to the global offshore energy sector. Though it only listed on the Alternative Investment Market (AIM) a couple of years ago, the company has over three decades of experience in the energy services sector.

Today, on 4 September, the firm released an excellent unaudited half-year report. Revenue increased 57% year on year to £49.8m, while gross profit surged almost 69% to £39.3m.

It saw high demand across both the renewables and oil and gas sectors:

  • Offshore renewables revenue jumped by 74.1% to £16.3m
  • Offshore oil and gas revenue rose by 50.0% to £33.5m

Return on invested capital (ROIC) increased to 25.5% from 19.1% in HY22, and its gross margin reached 78.8%. Those are incredibly healthy numbers.

Looking ahead, management expects second-half growth to moderate. However, the full-year results are still set to be “comfortably ahead of previous expectations“.

Gale-force tailwinds

The company’s customers operate in the decommissioning of oil and gas infrastructure as well as the offshore wind sector. Most of the firm’s hire equipment is transferable between both sectors.

It now has nine service centres in key international energy hubs in the Americas, Europe, West Africa, the Middle East, and Asia Pacific. This means it is perfectly positioned to capitalise on growth opportunities in the offshore wind industry.

These appear to be significant, with consulting firm McKinsey estimating that global installed offshore wind capacity could reach between 630 and 1,000 gigawatts (GW) by 2050. That’s up from 40 GW in 2020.

Additionally, management noted that it is “continuing to review M&A opportunities to complement organic growth and consolidate a highly fragmented market“.

This is exactly how Ashtead became such a monster winner. It went about consolidating a highly fragmented plant hire market through hundreds of bolt-on acquisitions.

Its spin-off is following the same blueprint, with management highlighting strong performances from two acquisitions, Hiretech and WeSubsea, in its latest report.

Will I buy the stock?

Investors have been paying attention to the company’s progress, as the share price has risen by 59% over the past 12 months. The market cap now stands at £326m.

The shares trade on a P/E ratio of 26, which is not exactly cheap. That may present a degree of valuation risk. However, the company is growing profits extremely quickly and should continue doing so as the global energy transition accelerates.

Therefore, I think Ashtead Technology stock is a perfect fit for my portfolio and I intend to invest in September.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in Ashtead Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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