Among the many services offered by Ashtead is hiring power generators, lighting and temporary barriers at big music festivals in the US, its biggest market.
At one of these, 80s RockFest, held in suburban Miami last month, thousands of music fans rocked to bands including Quiet Riot, Steelheart and Cheap Trick.
The FTSE 100 equipment rental group has built a cult following of its own. Shares in the company, which operates in the US, Canada and the UK, have risen from below £6 in 2013 to £20.87 at one stage yesterday.
The company, which derives 85 per cent of its revenue from Sunbelt, North America’s second biggest construction and industrial equipment rental business, has benefited from a steady market shift away from ownership. The weakness of the pound has boosted the value of its dollar earnings while strong demand in the US after Hurricanes Irma and Harvey for its fleet of cranes, diggers, concrete mixers and other tools has also helped.
The hurricane clean-up helped to propel revenues up 19 per cent to £1.9 billion in the first half of the year, the company said yesterday. Pre-tax profits rose 16 per cent to £493 million in the period and Ashtead lifted its dividend by 16 per cent to 5.5p per share. The group also said that it would launch a share buyback of up to £1 billion during the next 18 months.
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Its chairman Chris Cole, who has steered the group since 2007, also announced he was stepping down.
There is no doubt that it has been a smooth ride for Ashtead, which has been perfectly positioned to benefit from the currency fallout from Brexit as well as the prospect of big tax cuts in the US, where economic growth remains strong.
The proposed tax cuts would lead to a lower group tax rate of between 23 per cent and 25 per cent as well as a one-off, non-cash tax credit of about £400 million relating to deferred tax liabilities.
The natural disasters helped to add between £40 million and £45 million of incremental rental revenue at Sunbelt, which operates from 646 locations in the US and in Canada and employs 10,610 staff. In the UK, Ashtead has 189 locations nationwide and 3,546 staff.
Ashtead has been the top performer in the support services sector during the past three months, helped in part by a 28 per cent rise in its share price since the US hurricanes.
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It’s a fair guess that the temporary impact of these disasters is likely to fade in the months ahead as America’s southern states, which suffered tens of billions of dollars of damage, get back on their feet. That could mean some of the plentiful good news priced into these shares starts to fall away.
With progress now being made on Brexit talks, the greatest earnings uplift arising from the weak pound may be in the rear view mirror now too.
Ashtead insists that its underlying momentum remains strong and is pushing ahead with a five-year plan to maintain double-digit annual revenue growth until at least 2021.
To hit this target, the company may have to look increasingly to bolt-on acquisitions rather than organic growth. It is seeking to build up a Canadian business and is looking at other opportunities to expand.
Meanwhile, the exit of Mr Cole has triggered a hunt for a successor that could create uncertainty over future strategy.
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Although there is nothing fundamentally wrong with Ashtead’s business, with the shares so richly valued this could be a good opportunity to take advantage of a four-year rally to cash in at a record high price.
Advice Sell
Why A four-year rally to record highs offers a good opportunity for investors to cash in
Serica Energy
More than 40 companies are believed to be affected by the closure of the Forties pipeline, the export route for oil from about 80 North Sea fields.
With about 450,000 barrels per day of production, 40 per cent of UK output, brought to a halt, almost every operator, from Royal Dutch Shell to Enquest, has had some output affected.
For many, the hit appears to be more than cancelled out by the benefit of the higher oil prices elsewhere as a result of the closure.
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For Serica Energy, however, the closure knocks out its entire output.
Serica’s sole producing asset is its 18 per cent stake in the Erskine field, which it acquired from BP in 2015; Erskine relied on Forties for export, which has now been shut down.
As a result, Serica cut its guidance for full-year production to 2,000 barrels per day, down from between 2,200 to 2,400 barrels of oil and gas per day at the time of its half-year results in September. Shares fell almost 5 per cent yesterday.
Tony Craven Walker, its chairman, said that the overall effect was “not material” as long as the shutdown doesn’t last much longer than the two to three weeks expected.
The company is debt free and has a healthy cash position of more than $32 million at the end of September. As such, the dip in production and cash flows should not imperil its financial position.
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The company also appears confident that it should not affect its acquisition of interests in three other producing fields, Bruce, Keith and Rhum, from BP. All three also rely on Forties for export.
The deal, announced last month, should result in Serica’s production leaping to about 20,000 barrels per day. Its shares were suspended when the purchase was announced since the value of the assets meant it counted as a reverse takeover, but soared on their readmittance to trading.
It is unfortunate for any company to have its entire production reliant on a single piece of infrastructure that is beyond its control, but the significance of the Forties pipeline means fixing it swiftly is a priority. Despite the setback, Serica’s shares are worth holding on to.
Advice Hold
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