Ashtead Group plc Surges As Profit Beats Expectations

Ashtead Group plc (LON: AHT) jumps after issuing an upbeat trading statement and outlook.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Industrial equipment rental firm Ashtead (LSE: AHT) is surging this morning after the company unveiled an impressive set of second quarter results. Additionally, the group issued an upbeat trading outlook as Ashtead continued to benefit from the recovering construction market within its two key markets; the UK and US.

Ashtead’s second quarter pre-tax profit increased by 33% to £141.7m, compared to a pre-tax profit of £110.4m as reported in the year ago period. Earnings per share jumped to 18p for the quarter, up 34% year on year. Further, management noted that the strong demand for Ashtead’s services has continued into November and now the company expects a full year result ahead of its previous expectations.

As a result of Ashtead’s strong performance and outlook, management hiked the company’s interim dividend payout by 33%.

Ashtead’s chief executive, Geoff Drabble, commented:

“The Group delivered another strong quarter with record underlying pre-tax profits…With both divisions performing well, recovering end markets, and a proven track record of market share gains, we now anticipate a full year result ahead of our previous expectations.”

A price worth paying?

Unfortunately, if you want to get in on the Ashtead growth story, you’re going to have to pay a hefty price. At present, based on current City analyst forecasts, Ashtead trades at a forward P/E of 19.9. However, as the company is now expecting to report results ahead of expectations, this figure is out of date. The company’s forward valuation should fall slightly over the next few weeks as City analysts revise their figures.

Still, for growth investors, who are not overly concerned about the company’s high valuation, or token dividend yield of 1.3%, Ashtead could be a good pick. With earnings set to expand by more than 30% this year and forecasts predicting further earnings growth of 20% next year, the company’s shares offer growth at a reasonable price. Based on current figures Ashtead’s PEG ratio is 0.7.

That being said, Ashtead operates within a highly cyclical industry and the company requires a strong construction market to maintain a high level of earnings growth. Indeed, Ashtead’s shares crashed to 45p during the financial crisis, as demand for industrial equipment evaporated.

With this in mind, Ashtead’s high valuation concerns me, if the global economic recovery falters, and the demand for Ashtead’s equipment declines, the company’s share price could rapidly fall back to earth.  

Investing for the long-term 

Ashtead is the perfect cyclical share to profit from an economic recovery but if things take a turn for the worst, investors could be left out in the cold. 

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.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »