Ashtead jumps on double upgrade from BofA Merrill

Equipment rental firm Ashtead got a lift on Monday after a double upgrade from Bank of America Merrill Lynch.

The bank upped its stance on the stock to ‘buy’ from ‘underperform’ and boosted the target price to 1,100p from 800p, pointing to an improved outlook for the company’s markets.

Merrill Lynch raised its earnings per share estimates for 2017 and 2018 by 8% and 14%, highlighting improving economic indicators, increased capex expectations and a better outlook for rental yields.

“We believe that the lead economic indicators in the US are improving with the ISM indices bouncing off lows and the ABI gathering momentum.

“Furthermore, we sense that excess equipment, both new and used, is subsiding in the supply chain which bodes well for the outlook for rental rates. Currently, utilisation and rates are yet to turn, but early signs are positive.”

In addition, it said the stock is neutral or positive in the EU referendum debate and is trading at a material discount to historical multiples whilst offering around 20% per annum EPS growth.

Merrill said that in the case of Brexit, “lower potential demand in AHT’s modest UK business would be more than offset by increases to forecasts driven by sterling”. It noted that each 1% FX move is worth around £6m to pre-tax profit in a full year.

At 1105 BST, Ashtead shares were up 2.5% to 912.50p.