Berenberg lowers target price on Ashtead

Berenberg said it was cautious that Ashtead's shares had continued to soar higher in recent weeks, disregarding underperformance in lead indicators and, instead, enjoying the propulsion of the recurring narrative of a still elusive US infrastructure bill.

Early in June, the German bank argued that a combination of reduced asset utilisation, softer used equipment pricing and renegotiations of rental rates on equipment coming off-hire between cancelled or postponed projects would lead to margin weakness at Ashtead.

Berenberg said Ashtead's 2020 full-year results were in line with expectations and did not affect its thesis either way. However, industry data, on the other hand, had largely continued to support it.

"We remain cautious about the prospects for medium-term profitability and continue to think these risks are not adequately discounted in the share price," said Berenberg, which also reiterated its 'sell' rating on Ashtead.

The analysts said if they "generously" assumes that average margins over 2014-2020 reflected mid-cycle margins, then Ashtead typically trades on an enterprise value/sales multiple of 10x mid-cycle margin. However, this means that at present, the group's shares trade on an EV/sales multiple of 12.4x midcycle margin – a 20% premium to history.

"Ashtead now trades at or near a record premium relative to its main peer, United Rentals, on multiple metrics," said Berenberg.