Assuming economies around the world do fully unlock in 2021, I think we could see an infrastructure/construction boom before long. With this in mind, here are what I consider to be the best British stocks to buy in this space.
Return to form
At the end of last month, I said I’d be prepared to snap up FTSE 100 equipment provider Ashtead (LSE: AHT) based on my belief that there wouldn’t be any nasty surprises in today’s Q4 trading update. Positively, this has proven to be the correct call — the share price is up almost 3.5% as I type, on some very attractive numbers.
Revenue jumped 23% to £1.27bn in the final three months of Ashtead’s financial year as the company returned to growth. Understandably, the vast majority of this came from rental revenue. For FY21 as a whole, a 3% rise was logged at constant exchange rates (£5.03bn).
All told, Ashtead reported a pre-tax profit of £220m for Q4. That’s a stonking 158% jump compared to the same period in 2020. Nevertheless, a final figure of £936m for the entire year was 1% down due to the impact of Covid-19.
Other highlights from today’s statement include the 75% jump in free cash flow to record levels (£1.38bn) helping to reduce leverage from 1.9 times to 1.4 times. Although most definitely not a high-yielding stock, the 3.7% increase to the total dividend was also indicative of a company recovering well.
So, would I buy?
Actually, yes I would. In addition to already-excellent operating margins and an international presence, Ashtead begins its new financial year “with clear momentum”, according to CEO Brendan Horgan. With leaders including President Joe Biden intending to spend big on infrastructure, this doesn’t sound like hyperbole. In fact, I think Ashtead is, quite literally, one of the best picks and shovels plays around.
Of course, there’s no sure thing in investing. A rise in the number of infections in Ashtead’s key markets may cause delays to projects, as might a shortage of materials. One also wonders if the company’s valuation — 28 times forecast earnings before the market opened — might prove too rich for some.
Naturally, Ashtead isn’t the only option. Another of the best British stocks to buy in this sector, in my opinion, can be found lower down the market.
Growing flat-out
I’ve been bullish on laser-guided equipment manufacturer Somero Enterprises (LSE: SOM) for ages now. Some of this is probably down to old-fashioned bias (I hold the stock). However, recent stronger-than-expected trading in the US provides some substance. Assuming the company reports more good news in today’s annual general meeting, previous guidance could be exceeded again.
Somero products ensure concrete is perfectly level. This may sound dull, but it’s essential for buildings like warehouses. And thanks to the explosion of online shopping following multiple lockdowns, those warehouses will be in even greater demand from retailers going forward.
Again, there are risks. Like Ashtead, Somero could be impacted by a slowdown in projects. Its minnow status also means the latter’s share price could prove more volatile than its FTSE 100 peer.
Then again, on 17 times forecast earnings, Somero is considerably cheaper. It also generates far higher returns on capital (ROCE), has net cash on its balance sheet, and frequently showers its investors with cash. As such, I’d have no issue buying more today.
