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(Sharecast News) - JPMorgan Cazenove reiterated its 'overweight' rating on Ashtead on Tuesday and hiked its price target to 6,800p from 5,600p as it argued the risk/reward is now attractive.
The bank said the equipment rentals firm is currently a key debate stock in the sector, with the age old "cyclical or structural" debate reignited and likely to be tested over the coming 12 months.
It said the profit warning in November has not helped calm fears despite being driven by multiple independent non-cycle related factors.
"However, our work in this note shows that a combination of structural changes and management actions has driven an evolution in the business model and created a more sustainable equity investment with still sector-plus growth rates, robust cash generation and strong balance sheet optionality meaning the business is no longer simply just a play on the cycle, something we believe the market does not appreciate currently, and which we explore further in this note."
JPM said its work suggests the US non-residential outlook is not as bad as feared; mega projects will be a key driver of growth over the coming years; the group should continue to see significant market outperformance, supported by multiple drivers; and rental rates can remain resilient as catch-up replacement capex and disposals re-balance supply/demand.
"While the Q3 24 print will be soft (albeit well flagged), we forecast US and group organic rental revenue compound annual growth rate of 8% for FY25-26 with our upside scenario implying 13% growth," it said.
JPM said that with the shares now trading at a 7% discount to their five-year average on EV/EBITA and at their widest discount to United Rentals - its closest peer - in five years, it sees the risk/ reward as attractive. It also reckons that as investors get more conviction on the earnings trajectory, shares should re-rate through the year, with scope for earnings upgrades too.
At 1025 GMT, the shares were up 1.5% at 5,291.52p.
