Ashtead Hits 24-Year High on U.S. Housing Rebound: London Mover

Ashtead Group Plc, the U.K. equipment rental company that gets most of its sales from the Sunbelt unit in the U.S., rose to a record after saying full-year profit will exceed its forecasts as homebuilding rebounds.

“Based on a very strong January and February, the ramping up is starting earlier and is stronger than expected,” Chief Executive Officer Geoff Drabble said in a phone interview after Ashtead reported fiscal third-quarter earnings that beat analysts’ estimates.

The U.S. residential market is leading a construction recovery, with housing starts set to increase by 20 percent to 30 percent this year, Drabble said. In a sign of growing confidence, London-based Ashtead will move forward $100 million of fleet spending from next year to the current quarter. “We need to have that fleet in place,” the CEO said.

The shares advanced 7 percent, the biggest gain in six months, to close at 561 pence, the highest price since Ashtead started public trading in 1989. Ashtead shares have more than doubled in the past year and their volume traded today was more than triple the three-month daily average.

“The short- and medium-term for Ashtead look very promising,” Paul Jones, an analyst at Panmure Gordon & Co., who raised his recommendation on the stock to buy from hold, said in a note. The trading update was “stunning,” with quarterly results “far better than anticipated,” he said.

The total U.S. construction market may expand by about 4 percent to 5 percent this year, for the best year since 2006, Drabble said in the interview. The company has consistently underestimated capital expenditure requirements, he said.

‘Sweet Spot’

“U.S. non-residential is in the early stages of a multi-year recovery, which remains the sweet spot for Ashtead,” said Alex Hugh, an analyst at UBS AG, who raised his price target for the stock by 22 percent to 610 pence.

The market is 30 percent below previous peaks, implying growth of about 45 percent “to get back there, even before considering market-share gains,” the London-based analyst said.

Hugh raised his full-year pretax profit estimate 12 percent to 235.1 million pounds. Panmure’s Jones increased his estimate 14 percent to 235 million pounds and his 12-month price target by 40 percent to 626 pence.

Ashtead offers the prospect of “several years of super-normal profit and EPS growth,” Justin Jordan, an analyst at Jefferies Group LLC, said in a Feb. 26 note.

Jordan said today that the company will gain from an “ongoing structural shift to rental” as well as a modest recovery in rates and increased market share. Jordan raised his pretax profit estimate 12 percent to 235.4 million pounds and his price target by 17 percent to 615 pence.

Equipment Spending

Ashtead will have about 550 million pounds ($834 million) in capital expenditure this fiscal year after pulling forward the $100 million to further build its fleet, it said in a statement. Gross spending will be about the same next year, though a greater proportion will be “directed to growth rather than replacement,” it said.

Net capital expenditure, which includes disposals, will total about 450 million pounds this year, Ashtead said.

For seven consecutive quarters, Ashtead has said full-year earnings would beat its previous forecast. CEO Drabble declined to give numbers today and said he “could understand the logic” of analysts talking about a 10 percent upgrade to current-year predictions.

Ashtead also beat analysts’ sales estimates for the 12th consecutive quarter. Revenue of 333.9 million pounds exceeded the average of three analyst estimates compiled by Bloomberg by almost 12 percent. Pretax profit in the three months ended Jan. 31 was 52.3 million pounds compared with the average estimate of 32 million pounds.

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