Ashtead slumps on Credit Suisse downgrade

Equipment rentals firm Ashtead was under pressure after Credit Suisse downgraded the stock to ‘underperform’ from ‘outperform’ and slashed the price target to 770p from 1,300p.

The bank said that after taking a differentiated, in-depth look at the broader US construction equipment supply picture, it concluded that independent of the demand outlook, risks are building around rental rates.

CS now assumes rental yields in Ashtead's core US division fall to -1.7% for FY17 and to -2.3% for FY18. This, along with its expectations of a weaker demand outlook, result in earnings per share downgrades.

The bank cut Ashtead's EPS estimates by 15% for full year 2017 and 29% for 2018, putting it 10% and 18% below Thomson Reuters consensus, respectively.

“Our holistic analysis of the stock and flow of US construction equipment leads us to believe that the sharp contraction in construction activity in Emerging Markets (and Canada) is likely to result in sustained pressure on used-equipment prices in the US, which are a key determinant of rental rates,” CS said.

In addition, it noted that key barometers of US non-residential construction demand suggest the current non-residential upcycle could be weaker and shorter than thought.

At 0855 GMT, Ashtead shares were down 5.6% to 813.50p.