Deutsche Bank upgrades Ashtead to 'hold' from 'sell'

Ashtead was given a boost on Tuesday after Deutsche Bank upgraded its rating on the equipment rental company to ‘hold’ from ‘sell’ at an unchanged target price of 1,600p.

Deutsche Bank said its fears about the impact of macro-economic challenges have tempered following recent stronger data. The bank had previously expected a steady de-rating.

Last year US non-residential construction rose 3% in October and 4% in November after decelerating from 10% in January to 1% in September, the bank noted.

Deutsche Bank said it also recognises that following the election, US policy changes have the potential to stimulate growth. The bank’s economists have materially upgraded GDP expectations since the election.

“We therefore push out our expectations of a de-rating, and no longer believe the market will imminently imply a slowdown in the Ashtead multiple,” Deutsche Bank said.

“We also recognise that Ashtead’s shares have some scarcity value for UK long only fund managers seeking exposure to US GDP and fiscal stimulus.”

The bank has upgraded its forecasts for fiscal year 2017 earnings per share by 4.5% and 2018 EPS by 7.1%. However, Deutsche Bank said momentum can quickly change given the nature of Ashtead’s end market.

“With consensus enterprise value/sales back at 3.0x, we consider it important to continue to monitor the end markets carefully. On a 24m view we remain cautious over valuation.”

The third quarter results are due on 7 March and Deutsche Bank expects group adjusted pre-tax profit of £177m.

Shares rose 0.02% to 1,614.30p at 0948 GMT.