Ashtead beginning to enjoy recovery as earnings beat consensus

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LONDON (ShareCast) - - EPS of 46.6p ahead of expectations
- Revenues up 24% to £1.48bn
- "Beginning to enjoy recovery in markets"

Industrial rental group Ashtead reaped the benefits of heavy investment in its fleet as profits hit record levels in the year to April 30th, helping earnings beating expectations comfortably.

The UK-headquartered company, whose larger US business is seen as a play on the slow-burning US non-residential construction recovery, lifted underlying revenues 24% to £1.48bn and earnings before interest, tax, depreciation and amortisation (EBITDA) 34% to £685.1m.

Chief Executive Geoff Drabble said the 50% jump in pre-tax profits to a record level of £362.1m was particularly pleasing as it was achieved in parallel with management's long-stated commitment of increasing return on investment, which increased from 16% to 19% for the group, with debt leverage maintained a less than two-times-EBITDA.

Underlying earnings per share rose 51% to 46.6p, ahead of consensus expectations of 45.5p.

While the US construction recovery is taking longer than expected, optimism is increasing in the industry and data has shown construction activity up 4% year-on-year in the first quarter.

Drabble and his team have acted in anticipation, investing £741m in the rental fleet and a further £103m on acquisitions during the year and anticipate growing the fleet in the coming year in the "low to mid teens percent" range and will continue to open greenfield sites and make bolt-on purchases that expand market share and profitability.

He added that there was current planning for around 50 new locations in the new financial year.

"With both divisions performing well and beginning to enjoy recovering markets, we are well positioned for further growth and the board looks forward to the medium term with continued confidence," he said, mentioning the strong performance continuing in May. The full year dividend increased to 11.5p, from 7.5p.

Both the US's Sunbelt and the UK's A-Plant businesses performed well during the year.

At Sunbelt, rental revenue grew 23%, driven by a 17% increase in fleet on rent and 4% improvement in yield.

Sunbelt continued to take market share with the rental market as a whole growing 6% in 2013, as estimated by IHS Global Insight.

A-Plant, with the acquisition of Eve Trakway, delivered rental revenue up 33% on the prior year reflecting 21% more fleet on rent and a 9% improvement in yield.

Lack of shift in consensus estimates disappointing

Broker Investec (LSE: INVP.L - news) thought that "some may be disappointed there is no real consensus shift" following the company´s fiscal year results. Even so, Andrew Gibb reiterated his 'buy' rating on the stock and 1,100p EV/EBITDA -based target price.

The analyst added that "key risks centre on the wider macroeconomic outlook".


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