Little story here about CEO change at A-Plant in July. Obviously they are not happy in Charlottesville, SC!
Should Labour find its way into government then the underperforming A Plant will become nothing but a liability, as might a London listing.
Yes, I did include interest. However what I overlooked is that debt in the year 2018-19 increased by £1032.9bn, which means that about 220p per share of the discretionary spending was financed with borrowings. Obviously they can't grow debt by £1bn per year for ever, so that 220p has to be excluded from the sums. Discretionary spend not financed by debt was £1275.4bn or 274p per share, so if growth capex halves after 2021 from 348p per share to 174p that leaves 200p for shareholders (ignoring growth and effect of buybacks).
Some more musings on where shareholder returns might be after 2021
From the current report discretionary spending looks like this:
Growth capex £1030.6m
Total growth expenditure £1621.9m
With 466m shares that gives growth expenditure per share of £3.48
Then we have current dividend per share of 40p and planned buybacks for 2019/20 of £500m, which is £1.07 per share. So that's £1.47 per share on shareholder returns.
When the 2021 plan completes, let's assume that AHT enter an indefinite period of gradual growth. (By 2021 AHT and URI between them could be servicing about half the north American rental market.)
So if growth capex of £3.48 is halved after 2021, that releases £1.74 per share for shareholder returns giving a total of £1.47 + £1.74 = £3.21 per share.
£3.21 is a 15% return against current SP, so you'd expect the SP by 2021 to rerate upwards to reflect the improved returns.
Also note that the current level of growth spending is intended to deliver low teens annual revenue growth, so sustained over 2 years that might give a 20% increase in earnings per share.
As always with AHT, everything is subject to a supportive cycle.
There you go. If you think i'm talking a load of bobbins, please let me know!
Several analysts' views quoted on FT Alphaville:
The ones doing the buying are AHT themselves. Now down to 466M share, which means something like £680M spent on buybacks.. I'm sure they know what they're doing, but somehow I think I'd have preferred to have the cash...
On one of the investor presentations on the AHT website an American analyst asks if the company is being too CONSERVATIVE with its leverage!
For AHT to suspend or reduce shareholder returns in order to pay down debt might not be a popular move.
I'm no fan of the buybacks either, but seems we're stuck with them. If you want the cash you'll just have to sell some of your shares. When I last bought AHT there were 500m shares in issue and now there are 470m, so in theory if I sell off 6% of my holding I've got the equivalent to a dividend (I think). Not that I'm going to sell, AHT still seems to have very bright prospects, ups and downs of the US economy allowed for.
OK, for "yield" substitute Free Cash Flow Yield:
Free Cash Flow yield (FCF yield) is a measure of the amount of cash left over at a company after it has paid its operating expenses and capital expenditures. FCF yield tries to capture how much cash is left over for investors. For the middle of the road company in the S&P 500, the FCF yield is about 4%. Google has a FCF yield of 2.53%. Facebook is 3.59%. Amazon is 0.95%. Apple is 5.21%. When you look at tobacco, Altria is 5.70%, British American Tobacco is 6.59% and Phillip Morris is 6.65%.
At 7% AHT is still out ahead even while posting double-digit growth. And I still think the interesting times start in 2021 when AHT should emerge from its current empire-building phase with a spare £2 per share of growth capex in its pocket.
Of course, as we all know AHT is a highly-leveraged house of cards that is built on debt and an obliging North American economy and could collapse at any time! That's why I happened on the above article while researching non-cyclical stocks that are not particularly exposed to the USA.
AHT yield is over 7%
The dividend is about 40p per share
The buyback commitment is £500m per year. With about 480m shares in circulation that's £1 per share or so.
Total £1.40, yield is therefore a little over 7%
Personally I'd rather have the full £1.40 paid out as dividends. Three possible reasons why buybacks are getting most of the money:
1. US shareholders prefer buybacks
2. AHT say the current dividend is intended to sustainable through the cycle, ie it's being kept low in the hope it won't need cutting in the downturn.
3. On current numbers, £500m spent on buybacks saves £10m from the cost of the following year's dividend.
Note that AHT is combining a 7% yield with annual growth of 15-20% under the 2021 plan.
It's interesting to think ahead to where AHT will be when the 2021 plan completes. Growth capex is about £2 per share (new stores + acquisitions) so assuming that they don't immediately launch another five-year plan to double in size again by 2026 (fingers crossed they don't do that!) there could easily be scope to add another £1 to the current payout of £1.40 per share.
Another quarter of exceptional growth, achieving such substantial growth quarter after quarter is incredible. Clearly the company is on a roll and has kept it going by fuelling/funding the strong momentum that has built up. It is showing no signs of abating and looks well placed to maintain the growth into the new financial year.
The same cannot be said of A-Plant in the UK, although its quarterly numbers are encouraging, but whether this is something that it can sustain in the fourth quarter remains to be seen. The company is well placed in the UK market but could do some much better, if only it could gather some of the Sunbelt spirit and open mindedness.
Overall though another first class performance."
Vertikal appears to be a German equipment site. I agree with what they say about A Plant, either AHT needs to appoint a new manager to shake it up or else they should just get shot of it and transfer their primary listing to NYSE.
Ashtead explained the buybacks some time ago. They said that ownership of the equity is split equally between US and UK investors. In the US they hate dividends and love buybacks, in the UK they hate buybacks and love dividends. Hence shareholder returns are made using both methods.
AHT's special charm is that it's a strong growth company operating under cyclicals rules. One day no doubt we'll see Deutsche Bank's £7.70, maybe even much less, because the current cycle has to end some time and when it does the p/e could drop into low single figures. (The p/e is not exactly high at the moment!) However, provided Ashtead's growth opportunities continue to look reasonable (target is 20% North American market share up from current 7%) the low price will just be another good buying opportunity.
Item from rermag.com.
The equipment rental industry will reach $57.3 billion in the United States in 2020, according to the latest five-year forecast released by the American Rental Association, which projects a compound annual growth rate of 4.9 percent. The numbers in the forecast, updated at the end of July, are slightly modified compared to ARA’s quarterly forecast in late April, reflecting changes in the marketplace. ARA now projects industry revenue to increase by 4.9 percent in 2016 to a record $47.6 billion and to grow another 4.6 percent in 2017 to reach $49.8 billion.
The new forecast extends the projections to 2020 for the first time, showing steady revenue growth from 2016 through 2020 of between 4.6 percent and 5 percent each year.
“While the forecast has been adjusted to reflect changing market conditions, equipment rental is growing at more than double the rate of GDP growth and that is a good sign for the industry,” said John McClelland, ARA’s vice president for government affairs and chief economist. However, Scott Hazelton, managing director of IHS Economics, the economic forecasting firm that compiles data and analysis for ARA’s Rental Market Monitor, says economic growth in the first half of the year in the U.S. has not been as strong as previously expected because of uncertain growth overseas and the increasing value of the dollar.
“This also has been acerbated by uncertainty surround future policy direction from a muddled presidential campaign season,” said Hazelton. “However, construction remains strong, particularly in the residential sector, both new and home improvements. While nonresidential growth is slowing, we remain on track for another year of solid gains and consumer spending also remains strong. The slight adjustment in the forecast growth reflects the fact that the economic and construction fundamentals remain positive.”
The biggest change to the new forecast concerns Canada. Instead of projecting a decrease in total revenues in 2016 as it did in April, the ARA Rental Market Monitor now forecasts a 0.8-percent increase to $4.976 billion and total rental revenue in Canada is expected to grow at a compound annual growth rate of 4.2 percent between 2016 and 2020. IHS expects real residential and nonresidential construction to rebound in 2017 and beyond, reaching $5.859 billion by 2020.
Unfortunately it's all too easy to see how Deutsche's target could be reached. Although AHT and URI are on about the same p/ ratio, Ashtead's price sales ratio is double United's. Ashtead is no doubt the luckier company (they've said as much -- no Canada, no oil), hence the reason for its superior profitability, however there's no reason to suppose their advantage will last forever and presumably over time the price sales ratios of the two companies will converge. Up, down, somewhere in the middle, whichever way it goes you'd have to say that URI looks the safer long term bet (if you like highly geared market-dominating plant hire companies that is).
My own target of £20 is a multi-year one and is based on (a) stated target of 20% US market share, up from 7% currently, and (b) share buybacks during slack periods.
Re Hertz, I do recall Ashtead predicting a future in which the current three market leaders become two or three leaders. Note that one of the leaders, presumably Hertz, has potentially dropped out of the picture.
Positive about the next couple of years and about the prospects of the big companies in particular.
I would love to see AHT properly downgraded -- if they are about to enter a phase of the cycle where capex is low and earnings are strong then the weaker the SP the better, it means they can buy back more shares. And I can buy some more as well.
Cycles aside, the only real threat I see to this company and its peers is that the equipment manufacturers, Caterpillar, Volvo etc, effectively turn themselves into rental operations and, so to speak, try to cut out the middleman. They already offer hire as an alternative to sale, I guess the total effect depends on their willingness to set up against powerful competitors who also happen to be their biggest customers.
Ashtead's target is 20% of the US market.
Icing on the cake is if they spin off A-Plant or sell it to Speedy or someone.
£20 my personal target, although probably not on the same sort of time scales that Deutsche Bank analysts work to!
When it gets there I want to be holding 50,000 shares, 0.1% of the company.
The webcast on the Ashtead site is instructive. The CEO admits his limited exposure to oil, gas, and Canada is down to "dumb luck", but looks ahead to a future when Ashtead and its large, well-financed, and well-managed peers carve up the large and growing North American rental market between them.
SP can drift as low as it likes, Ashtead say the predicted outlook, ie reduced capex, turns them into CASHTEAD with lots of spare pennies to buy back shares. The lower the SP the better!
Longer term we have AHT's prediction that they can more than triple EPS thanks to increases in all three of north American construction activity, rental penetration, and market share.
Three times EPS plus shares bought back at low low prices -- I can't see any problem there!
Not great, and if it were United Rentals reporting these you might be worried (although good to see that their rates are up). However, Hertz's plant rental operation appears to be somewhat troubled and therefore might not indicative of general market forces. Also interesting that at page 36 of the January investor presentation (http://www.ashtead-group.com/lib/docs/042404-analystandinvestormeetingjanuary2015.pdf) Ashtead see themselves progressing from "Top 3" to "Top 2 or 3", meaning they see the possibility of Hertz dropping out of contention leaving domination of the market to themselves and URI. Here's hoping.
The equipment rental industry will set an industry record for revenues in 2015 according to the latest industry forecast from the American Rental Association, despite reduced demand for equipment in oil patch drilling sites. Rental companies historically are able to adapt to changing market conditions, shifting inventory and moving equipment to where demand is greater. Increased activity in construction as well as party and event market segments are offsetting the decline in opening new sites for drilling.
The new quarterly ARA forecast from its ARA Rental Market Monitor subscription service has been modified slightly from February with total revenue growth of 7.9 percent expected in 2015 to reach a record $38.5 billion in the United States, including construction/industrial; general tool, and party and event.
ARA’s current five-year forecast calls for steady growth of 7.2 percent in 2016, 8 percent in 2017, 7.9 percent in 2018 and 6.8 percent in 2019 to reach $51.3 million.
“Even as several forces, including harsh weather, held back U.S. economic growth in gross domestic product to 0.2 percent in the first quarter, total rental revenue was up 4.9 percent in the same time period and is expected to exceed 9 percent in the second half of the year,” said Christine Wehrman, ARA’s executive vice president and CEO.
Global forecasting firm IHS Economics and Country Risk, which compiles data for ARA, is now forecasting construction/industrial rental revenue to increase 8.2 percent in 2015 to $25.9 billion, with general tool projected to grow 7.9 percent to $9.8 billion this year and party event to show a 4.7 percent increase to $2.7 billion.
“The equipment rental industry will achieve its new peak level as the result of a prolonged gradual improvement in the economy as a whole, and construction, industrial and consumer markets in particular,” said Scott Hazleton, managing director of IHS. “There was also some lift from energy markets, which are slowing, but the majority of the growth has come from solid fundamentals. Given a current level of activity based on solid ground, an economy that continues to improve will lead to rental revenues that are achievable and lasting.”