20th Nov 2023 12:19
(Alliance News) - With Hollywood strikes and a quiet hurricane season set to scupper Ashtead Group PLC's annual results, the firm is relying on its growth opportunities in the US.
The industrial equipment rental company on Monday said it expects to report "record results" for the half year that ended on October 31, but its shares suffered as it cut annual guidance.
Ashtead's shares were down 12% to 4,624.00 pence each in London on Monday afternoon.
The London-based company anticipates rental revenue growth of 13%, and adjusted pretax profit growth of 5% to around USD1.31 billion from USD1.24 billion in the first half of 2022.
Ashtead expects earnings before interest, tax, depreciation and amortisation to increase 15% to approximately USD2.58 billion in the recent half-year from USD2.25 billion a year before.
However, Ashtead also said revenue late in the second quarter and into the third was hit by lower emergency response activity, due to a quieter hurricane season and fewer naturally occurring events like wildfires. Also in both quarters, its Film & TV business was hurt by the recent actors' and writers' strikes.
Ashtead consequently revised its full-year guidance downwards. It now expects group and US rental growth between 11% and 13%, compared to prior guidance of 13% to 16%. This will cause Ebitda to be between 2% and 3% below market expectations.
"In many ways, the equipment hire specialist is a victim of its own success. Shareholders have enjoyed a string of upgrades to earnings estimates in the past couple of years, so even this very mild disappointment has come as a considerable shock," said AJ Bell investment director Russ Mould.
"When you add a USD2 billion depreciation charge to the mix, an occupational hazard of owning lots of equipment, and materially higher interest costs, then it's little wonder that the market has reacted negatively to the news," he added.
Ashtead explained adjusted pretax profit will fall below market expectations due to a depreciation charge of around GBP2.12 billion, and a net interest cost of around GBP540 million.
Capital expenditure guidance, meanwhile, remains unchanged at between USD3.9 and USD4.3 billion.
Despite the downgrade, Ashtead affirmed its confidence in its "robust" end markets in North America, pointing to the increasing number of mega projects and recent legislation.
"Projects relating to the Chips and Inflation Reduction Acts are contributing strongly to growth in Ashtead's US business, and such governmental largesse may be one reason why America's economy continues to defy the doubters," Mould continued, referring to recent US legislation that provides investment subsidies.
"In this respect, it is tempting to see Ashtead's trading alert as a blip. But the US deficit is growing at an alarming rate even when the economy is also growing and any unexpected slowdown would presumably hit the tax take and increase welfare spending to make a difficult situation much worse."
Mould also noted the recent Institute of Supply Management purchasing managers' indices, which revealed a contraction in new orders in the US. This is traditionally thought to signal a future slowdown or recession, he noted.
"Another key end-market for Ashtead is housing, and the American market is hardly flying, if the monthly NAHB housebuilders' survey is any guide, and any prolonged period of cool or weak activity here could conceivably take a further toll on Ashtead's sales and profit outlooks, as well as its share price."
By Elizabeth Winter, Alliance News senior markets reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
Ashtead Group