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Ashtead's long term-goal is 20% market share in the USA. Currently they have 11%. Decarbonisation, climate change adaptation, extreme-weather response, and infrastructure renewal all mean that the market for equipment hire is likely to grow over the next decade, but even if it doesn't grow, Ashtead intend to grab nearly twice as much market share as they have now.
And if they ever do run out of room to grow they can always redirect their ample free cash flow to buying back more shares.
I think the only thing that could really hurt them is a prolonged economic downturn.
Also bear in mind that cyclicals always look expensive coming out of a downturn (pandemic), and AHT is at least semi-cyclical.
I think it's a little bit of cleverness on Ashtead's part. They've kept the dividend low enough that they can increase it every year even through the depths of a global pandemic, meanwhile the real shareholder returns are in the buybacks, which can be turned on and off at will.
Pre pandemic, if you added the dividend and the buybacks together you were getting a "yield" of over 7%.
Believe it or not, AHT is a dividend aristocrat.
https://www.dailymail.co.uk/money/investing/article-9775559/Can-rake-good-dividends-without-relying-sin-stocks.html
Let me guess, it's all about "challenges" and "complexity" and green transformation.
Does he ever address the option of using all free cash flow to buy back the shares, meanwhile closing down marginal operations and firing staff by the tens of thousands in order to maximize shareholder returns?
I would guess not.
We need some sort of PE pirate in charge. An old-style engineer like BVB who's always looking for new challenges and problems is the wrong man for the job right now.
Every Ashtead investor's worst nightmare: SP nowhere to go and a sub-1% dividend.
But with the buybacks (£500m per year) the shareholder return is nearly 3%.
And they intend to double in size (again).
And when they finally run out of room to grow they can just ramp up the buybacks.
Yes both AHT and URI are down, maybe it's just reaction to the news that the Biden infrastructure bill is running into political difficulties.
It's worth remembering that if AHT directed its free cash flow to share buybacks instead of growth, it could buy back half its shares in less than 10 years. All the while increasing the dividend.
Anyway, results on Tuesday.
United Rentals' leverage is even higher, so I think you just have to accept that these businesses are going to fund their fleets with debt.
For me, what's more interesting is that they are funding their expansion from free cash flow, so if they start hitting growth limits they will be in a position to greatly increase shareholder returns (see table 04 in the financial review).
It's something their previous CEO, Geoff Drabble, once said. He said that UK shareholders love dividends and hate buybacks and US shareholders love buybacks and hate dividends. So AHT do a bit of both, as their shareholders are split approx 50:50 between the two countries.
As for all-time high, if you look at the Capital Markets Day summary you'll find a section on the deployment of free cash flows. Within this, AHT demonstrate the effects of buybacks using an SP of £55.
They did pay down some debt during the pandemic. But financial and operational gearing have always been part of the AHT deal, so investors should know what they are getting into. Undoubtedly a long downturn would hurt.
"Subject to ongoing shareholder approval, over the next two financial years the Group anticipates buying back up to £1 billion in shares."The buybacks are to please their US shareholders. £1bn will buy back about 5% of the shares at current prices. If the cash were used for divis instead, we'd get £1 per share in each of the next two years. Personally I'd prefer divis, but I suppose that AHT need to keep their US investors happy.
You need to forget what you paid for your RDSB shares and instead look at your holding as an amount of cash; then ask yourself, where is this cash best invested RIGHT NOW?
If you decide your cash is not best invested in RDSB then you sell your shares and you buy the other thing.
It's not complicated. Well, maybe if you've got a ton of CGT to pay from selling your RDSB it might be a little bit complicated because your new purchase has got to go up some % just to compensate for the tax grab. But since you're talking about averaging down on RDSB that's probably not the case for you.
Stick with RDSB if you see inflated stock prices elsewhere AND the world coming out of lockdown, otherwise sell.
They like data centres.
https://ftalphaville.ft.com/2020/01/17/1579255604000/Markets-not-live--Friday-17th-January-2020/
There's a ton of work that's going to be needed over the next decade, a lot of it related to infrastructure renewal, flood defences, 5g, population growth, urbanisation, and green energy installation. AHT should benefit handsomely, with the proviso that the UK offers a grim picture of what a mature rental market can look like, ie far too many competitors and no one making any money. AHT and URI are to some extent in control of the North American market, hopefully they can see their way to gently growing market share while not competing against each other too hard!
Little story here about CEO change at A-Plant in July. Obviously they are not happy in Charlottesville, SC!
https://vertikal.net/en/news/story/33575/change-at-the-top-for-a-plant
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
Acquisitions £591.3m
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:
https://ftalphaville.ft.com/marketslive/2019-06-18-2/
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...
Results tomorrow!