This report is an updated version of the report published on 20 June 2022 at 08:29 AM GMT+1.

 Ashtead Group PLC (LON: AHT)

Ashtead Group is an FTSE 100 index listed British industrial equipment rental entity that rents a range of construction and industrial equipment to a diverse customer base.

Recent trend of dividend payments

The company has a consistent history of payments of dividends. It has proposed a final dividend of 67.5 US cents per share in FY22, reflecting a significant increase from 48.24 US cents paid in the prior corresponding period. The dividends will be paid on 09 September 2022 to the shareholders on the register as of 12 August 2022.   

 (Source: LSE, chart created by Kalkine Group)

Growth Prospects

• Strong Fundamentals: The Group reported impressive performance during FY22 with a substantial increase in revenue and profitability during the year, with a focus on capital investments and acquisitions.
• Business Expansion: The company made investments of US$2.4 billion in capital across existing locations and greenfield projects in FY22. It also invested US$1.3 billion on 25 bolt-on acquisitions, thereby adding a total of 123 locations in North America during the year.

 Key Risks 

• Macro Concerns: Most of the Central Bank’s across the world have hiked their interest rates in order to tame the high inflation levels. This has led to fear in the economy about a possible recession in the near term.
• Currency Risk: The Group’s majority of assets, liabilities, revenues, and costs are denominated in US dollars, but sterling and Canadian dollars also contribute to 24% of its net assets. As such the rising value of US dollars can adversely impact the financial statements of the company.
• Business Risk: AHT is dependent on construction space for its business; however, the sector faces the challenge of stiff input prices and energy bills owing to the disruption of trade with Russia amidst geopolitical tensions.

Key Fundamental and Shareholders Statistics of Ashtead Group PLC.

 Abrams Bison Investments, L.L.C. is the most significant shareholder as it holds nearly 22.43 million shares.

 FY22 Results Update (for the period ended 30 April 2022, as on 14 June 2022)

(Source: Company Filings)

• Rise in Revenues: The Group reported an increase of 19% in revenues to US$7,962 million in FY22, compared to US$6,639 million posted in FY21 on a constant currency basis. Group revenues were driven by a robust 22% increase in rental revenues during the year, compared to FY21.
• Improvement in Bottomline: Improved revenue performance and decent operational execution have allowed AHT to post an increase of 38% in adjusted profit before taxation to US$1,668 million in FY22, compared to US$1,235 million in FY21.
• Free Cash Flow: The Group generated free cash flows of US$1,125 million in FY22, despite capital investments of US$2,164 million during the year. In comparison, it deployed US$955 million in capex in FY21.
• Buybacks: In FY22, AHT has spent US$410 million on share buybacks, compared to nil in the prior year.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 17 June 2022, AHT’s shares were closed at GBX 3,513.00. Stock’s 52-week High and Low were GBX 6,572.00 and GBX 3,498.00, respectively.

On a daily chart, the stock is trading close to the lower Bollinger band with 14-day RSI level at ~33.11, indicating an oversold stance.

Valuation Methodology: Price/Earnings Approach (FY23E) (Illustrative) 

Business Outlook

The Group has delivered resilient business performance amidst significant headwinds observed during FY22 and FY21. It has started FY23 on a positive note with continued momentum from FY22. The management believes that it is well placed to navigate the ongoing macro concerns and is optimistic about its prospects moving ahead. AHT plans to continue with its capital investment objectives which has enabled it to leverage on the structural growth opportunities while maintaining a decent and flexible balance sheet at the same time.

(Source: Company Website)

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the resilient performance, capex for growth, optimistic outlook, and support from the valuation as done using the above method, we have given a “Buy” recommendation on Ashtead Group PLC at the closing market price of GBX 3,513.00 (as of 17 June 2022), with lower-double digit upside potential based on 13.35x Price/Earnings (approx.) on FY23E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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