Records and upgrades follow Ashtead's results
As much as Ashtead (AHT) boss Geoff Drabble tries to downplay the "Trump card", there's no denying that the US president has been a boon for shares in the equipment rental company. They rose as much as 5% Tuesday to a fresh record high and some believe they could go further still.
Up more than 70% since Donald Trump's election to the White House, the FTSE 100 (UKX) stock was given fresh impetus today after Drabble forecast better-than-expected annual results and made a surprise pledge of up to £1 billion in share buy-backs over the next 18 months.
Trading momentum remains strong, particularly in the United States where Ashtead generates nearly 90% of trade through its Sunbelt division. Rental-only revenue growth for Sunbelt was 18% in the quarter to October 31 as group revenue lifted 22% to £945 million and profits rose 24% to £298 million.
Ashtead's role in clean-up efforts following hurricanes Harvey, Irma and Maria helped the performance, but Drabble is keen to stress that the factors behind the US growth story are as much structural as they are cyclical or due to one-offs.
Recent excitement in the City about Ashtead stems from Trump's US tax reforms, which will mean a lower group tax rate of 23-25% as well as a one-off, non-cash tax credit of about £400 million relating to deferred tax liabilities.
While Ashtead cautioned that the full benefit may not be fully realised until 2019/20, analysts at Investec Securities have said that a 23% effective tax rate could increase its estimates of full-year 2019 earnings per share (EPS) by 17%.
On Trump's infrastructure spending plans, Drabble said earlier this year that this was little more than a long-term advantage for Ashtead.
Ashtead has a five-year plan to grow its North American business and is only 18 months into the journey. Sunbelt is now the second-largest US rental equipment business, with almost 650 outlets. In 2014, Sunbelt entered the Canadian market where it is gradually building a presence and network of stores.
In the UK, Ashtead's A-Plant business continues to perform well and delivered rental only revenues of £182 million in the quarter to October 31, up 20% on the prior year.
With shares up 28% since the US hurricanes hit, UBS analysts said the strong quarterly performance and US tax cut were mostly factored into the share price, although they said that today's significant share buy-back was unexpected.
Barclays moved its target price to 2,263p from 1,867p following today's update, even though Ashtead has been the strongest performer in the UK support services sector by some distance over the past three months.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.