Ashtead hoists final dividend and plans buyback as profit margins surge

After a strong fourth quarter where profit margins grew to record levels, Ashtead has announced a bumper dividend and a £200m share buyback.

The construction equipment rental group proposed hoisting the final dividend to 18.5p, meaning the total payment of 22.5p will be up 48% on the previous year.

With rental revenue up 16% and pre-tax profits surging 42% in the fourth quarter, for the full year Ashtead's underlying revenue rose 17% year-on-year to £2.26bn and underlying profits by 24% to £645.3m.

Underlying earnings per share soared 47% in the final three months of the year to lift full year EPS 28% to 85.1p.

Ashtead’s chief executive, Geoff Drabble said the continued improvement in margins saw group EBITDA margins hit a record 46% and this led to the hiked dividend and buyback of up to £200m.

"These strong margins, together with the natural moderation of our replacement fleet expenditure, mean we are entering a phase where we anticipate both good earnings growth and significant free cash flow generation. We therefore have the flexibility to continue both to invest in our long-term structural growth opportunity and enhance returns to shareholders."

The principal driver of the outstanding performance is the North American arm, Sunbelt, where rental revenue growth continued to enjoy cyclical and structural trends.

Like-for-like growth there of 12% saw Sunbelt take market share and, helped by 7% contribution from bolt-on acquisitions and greenfield openings, saw the unit grow twice as fast as the 6% US market growth, which is forecast to grow again this year.

In the UK, A-Plant performed solidly, with rental-only revenue up 11% in markets which the company called "competitive".

On the outlook, Ashtead said there had so far been a "good seasonal upward trend in fleet on rent throughout the Spring which has continued into the new financial year".

"Our end markets remain strong, the structural drivers are still in place and we have a strong balance sheet which allows us to execute our plans responsibly."