Berenberg initiates coverage on Ashtead Technology at 'buy'

Analysts at Berenberg initiated coverage on subsea equipment and solutions group Ashtead Technology at 'buy' on Thursday, branding the firm "a market leader in a thriving sector".

Berenberg thinks that Ashtead has strong customer relationships, forms an important part of the subsea supply chain, provides "differentiated exposure" to the energy transition, and has an "ambitious management team" that is looking to scale the business on a multi-year view.

"We believe that Ashtead Technology can increase revenues at healthy double-digit levels, on an organic constant-currency basis, across our forecast period, supported by a number of macro and micro drivers," said Berenberg.

The German bank added that while a large proportion of Ashtead Technology's revenue comes from the rental of equipment to customers, it believes that the company adds "significant value" from its product selection, availability and its application of technological knowhow, as well as from servicing and assembling equipment, rather than just being a pure rental business.

"This model helps to drive strong pricing power, margins and returns," said Berenberg, which also issued the stock a 405.0p target price.

Berenberg said Ashtead Technology currently trades on a 12.7x full-year 2023 price-to-earnigns ratio and 7.5x EBITDA with a 4.4% free cash flow yield.

Reporting by Iain Gilbert at Sharecast.com