Ashtead slumps as capex plans spark US slowdown concerns

Shares in equipment rental firm Ashtead fell sharply on Tuesday, with analysts pointing to concerns over the company’s plans to cut capital expenditure next year, as it reported a jump in third quarter profit.

For the quarter ended 31 January, statutory pre-tax profit rose 16% to £133.5m on revenue of £612.2m, up 15% from the year-earlier period.

In the first nine months of the year, pre-tax profit was up 20% at constant exchange rates to £482m despite the slowdown in oil and gas markets that provided a headwind which will continue in the fourth quarter.

Ashtead said growth was driven by increased fleet on rent with yield flat year-over-year.

Chief executive Geoff Drabble said: "Looking forward, while we are watchful of the broader economic environment, we continue to see encouraging growth opportunities and expect double digit fleet growth in the US in 2016/17.

With both divisions performing well, strong end markets and our strategy clearly working, we expect full year results to be in line with our expectations and the board looks forward to the medium term with confidence."

The company said capital expenditure would be at the top end of its previous guidance for the full year, at around £1.2bn at current exchange rates.

Going forward, it said it was “entering a very different replacement cycle” as it laps its low capital expenditure years of 2009, 2010 and 2011 and therefore its replacement spend will be much lower than recent years.

“Reflecting our desire to be watchful of broader economic trends before finalising our Q3 and Q4 2016/17 spend, we have a broad range for next year's capital expenditure of £0.7 to £1bn,” Ashtead said.

The stock was down 12% to 811.95p at 0928 GMT, as analysts highlighted the cut to capex next year.

Bank of America Merrill Lynch said 2017 capex guidance implied double-digit fleet on rent growth versus mid to high teens growth in 2016.

Charles Huggins, investment analyst at Hargreaves Lansdown, said the capex reduction could be seen as painting a negative picture of the US economy, where the group derives most of its profits.

‘Ashtead generates the bulk of its profit in US non-residential construction markets where conditions remain favourable - for now. However, the market is clearly worried about a potential US slowdown. Ashtead’s plans to cut back capital expenditure and reduce leverage are sensible in this context, but do little to allay investors’ concerns of tougher times ahead,” he said.