RBC Capital upgrades Ashtead to ‘outperform’, hikes price target

RBC Capital Markets upgraded equipment rental firm Ashtead on Tuesday to ‘outperform’ from ‘sector perform’ and hiked the price target to 7,450p from 5,200p.

The bank said it has become increasingly optimistic on the prospects for the US economy relative to the rest of the world.

"We are aware that this is the broad consensus already but, taking our cues from the FX and fixed income markets, we think this could re-invigorate US construction activity which has been adjusting to higher interest rates," it said.

"This should kick-start more positive earnings per share momentum for Ashtead after an underwhelming 12 months."

RBC said that with almost 95% EBITA exposure to the US, Ashtead is likely to screen well for international investors and is one of only a few ways to gain such exposure in the FTSE 100.

The bank also said demand improvement should clear current supply overhang.

"We have been more cautious than the average until now due to the oversupply of rental fleet which has been visible in auction inventory and pricing data," it said.

"Recent data points suggest auction pricing has inflected in key equipment categories and, fundamentally, we think that a rosier demand outlook should accelerate the move back closer to supply/demand equilibrium. This is helpful for rental rates (pricing) and removes a key risk in terms of inflation management."

It also said that second-quarter earnings due next week have the potential to surprise positively.

At 1245 GMT, the shares were up 1.3% at 6,358p.