Ashtead shares drop as UK sales forecasts cut

Shares in Ashtead sank on Tuesday morning despite the equipment rental group reporting a record performance in its fiscal first quarter, after it cut its forecast for UK growth due to a "softening" market.

The company said rental revenues in the UK, which accounts for around one tenth of group sales, are expected to rise by just 6-9% this year, down from earlier guidance of 10-13%. Nevertheless, guidance for growth in its North American divisions was unchanged.

The stock was down 5.7% at 5,157.24p by 0904 BST.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said the revised UK guidance will have come as a "shock" to the markets, and be a sign of warning for "deteriorating conditions" across the sector.

"While the warning lights have been flashing, particularly in the latest snapshot of the UK manufacturing sector in August flash PMI numbers, the extent of the fall in guidance has come as shock, with shares falling sharply on the open. Its little surprise that its UK and US businesses are diverging in prospects, given the huge stimulus programmes provided by the Biden administration across sectors like green energy and infrastructure."

Ashtead said group revenues at constant currency rose 19% year-on-year in the three months to 31 July to $2.7bn, while adjusted pre-tax profit increased a lesser 11% to $615m as a result of higher financing costs.

The company, which operates under the name Sunbelt Rentals in the UK, US and Canada, is the second-largest equipment rental company in the US with 1,128 stores in all 50 states.

The US division, its largest, increased sales by 22% to $2.3bn, while UK revenues were broadly flat at $225m. Canadian revenues rose 16% to $160m, though the company highlighted that the Writers Guild of America and Screen Actors Guild strikes were having a significant impact on is Film and TV business there.

Free cash flow improved to $139m, up from $91m a year before, while the net debt-to-EBITDA leverage ratio remained at 1.6x, which is the lower end of Ashtead's target price.

Chief executive Brendan Horgan said: "We are executing well against all actionable components of our strategic growth plan, in end markets which remain robust. In the quarter, we invested $1.1bn in capital across existing locations and greenfields and $361m on nine bolt-on acquisitions, adding a combined 40 locations in North America.

"This significant investment is enabling us to take advantage of the substantial structural growth opportunities that we see for the business as we deliver our strategic priorities to grow our General Tool and Specialty businesses and advance our clusters."

Horgan said that, despite a "softening" in the UK market, the company's overall performance is estimated to be in line with our expectations.