Ashtead elevated on news from US rival

Second-quarter earnings from United Rentals beat expectations and the company upgraded its full year revenue and operating profit guidance.

Commentary from management as the industry enters its busy season noted stronger volumes and "an improved rate trend" across the business.

United enjoyed a rate impact of -1.2% in the second quarter, up from -1.4% in the first, and marking another period of sequential improvement from the depths of the -2.8% and -2.4% in the first two quarters last year.

Analysts at RBC Capital Markets in London said these comments are likely to be in focus for its FTSE 100-listed rival and follow news of a Canadian acquisition earlier this week.

"For Ashtead, this has been a key concern of the market, with a view that a negative rate environment inferred oversupply and therefore a slowing down of growth in the US (despite AHT demonstrating that rates have been flat and largely stable over that past 12 months)," RBC said.

However, RBC said that even with rates flat or slightly negative, volume potential and the efficiencies of its scale should continue to drive margin growth for Ashtead.

"We continue to like the structural story, and with potential for additional capital returns," the analysts added, pointing to a 12.9 price/earnings ratio for the 2018 calendar year for a two-year compound annual growth rate in EPS and DPS of 13% and 12%.

On Wednesday Ashtead's North American arm, Sunbelt, sealed a deal to buy Canadian rental equipment provider CRS Contractors Rental Supply for an initial cash consideration of C$275m.

The deal, which includes an additional earn-out of up to CAD20m dependent on future performance, is expected to complete in the next few weeks.