Ashtead Group lifts guidance as Q1 revenues gain from weak sterling

Industrial equipment rental company Ashtead Group’s revenue increased as it benefited from weak sterling in the first quarter, with management saying it expected full year results to be ahead of expectations.

For the first quarter ended 31 July, total rental revenues grew 12% in generally strong end markets, lifting statutory revenues 4% to £707m at constant exchange rates compared to the same period last year, with growth in both US-based Sunbelt and the UK's A-Plant.

However, with the tailwind from the drop in sterling total statutory revenues grew 14%.

Lower gains on fleet disposals due to lower replacement expenditure were broadly offset by weakness in sterling.

Underlying profit before tax increased by 14.5% to £184m or 4% at constant exchange rates. The company said its strategy was to drive growth through greenfield openings and bolt-on acquisitions, as Sunbelt’s rental only revenue increased 13% and A-Plant’s by 15%.

Sunbelt's total revenue, including new and used equipment, merchandise and consumable sales, increased 4% to $853m, but jumped 15% in sterling to £610.7m.

A-Plant rental only revenue rose 15% to £75m due to increased fleet on rent with yield flat year-on-year and total revenue increased 7% to £96m.

Capital expenditure for the quarter was £328m gross and £310m net of disposal proceeds. The company spent £64m on four bolt-on acquisitions during the period to expand its footprint and diversify into specialty markets.

Net debt at 31 July was £2,348m, up from £1,804m in 2015, but fell as a proportion of EBITDA from 1.8 to 1.7. Weaker sterling increased reported debt by £197m.

Chief executive Geoff Drabble, said: "The underlying performance of the business continues to benefit from a clear and consistent strategy of organic growth supplemented by bolt-on acquisitions. In the quarter, the reported results were positively impacted by weaker sterling, £17m, but this was broadly balanced by the impact of lower gains on fleet disposals, £12m, as we reduced our replacement capital expenditure.

“We will continue to grow responsibly, adhering to the capital allocation priorities we have outlined … Both divisions are performing well, our end markets are strong and with the benefit of weaker sterling, we expect full year results to be ahead of our expectations and the board continues to look to the medium term with confidence."

During the period, the company also bought back 1.6m ordinary shares for £17m under the share buyback programme announced which are held in treasury.

As of 0833 BST shares were rising 5.48% to 1,327p and pacing gains on the Stoxx 600.