MIDAS SHARE TIPS UPDATE: Digger hire firm Ashtead’s investors clean up as shares soar
When disaster strikes, you can be sure someone, somewhere is profiting.
As hurricanes ravaged the Caribbean and coast of America this month, analysts turned their attention to Ashtead.
Midas first tipped the equipment hire firm in 2007 at 156p. We revelled in the success of that choice in 2012, by which time the shares were 331p.
Devastation: Ashtead equipment has been used after hurricanes Harvey and Irma
Midas said that investors would be wise to keep most of their shares, as it should continue to deliver for at least a couple of years.
How many of them, one must wonder, held on as they climbed to 1738p. Those who did might want to hold on a little longer.
Ashtead has already benefited from the pound’s plunge since the Brexit vote. The business draws 90 per cent of its revenues from the US, so it gets a boost when these profits are converted into sterling.
Shares have risen 240p in the past month, as experts say clean-up operations for hurricanes Harvey and Irma are already boosting Ashtead’s bottom line, which should be reflected in its second-quarter figures in December.
Ashtead has the second-largest market share in the US, making it well placed to benefit as clean-up and construction continues in the wake of the storms.
But investors should not get too hung up on that. After all, spending on reconstruction is not the same as new building work, and the damage suffered could cause economic growth to slow.
But Ashtead was doing well before the disasters. First-quarter results out last week revealed a 16 per cent surge in sales to £880 million and a 19 per cent jump in pre-tax profits to £229 million. Consensus forecasts are for full-year sales growth of 12 per cent and a 17 per cent uptick in profits.
The firm has put those rising profits to work, spending £116 million on five purchases in the first quarter. It has also invested £377 million in equipment and stores.
This means the firm has taken on more debt, but the strategy has brought efficiencies and so higher margins. Ashtead has been smart about its debt too, refinancing at lower interest rates for longer periods. And there is still the promise of President Trump’s US infrastructure spending to keep driving profits forward.
Midas verdict: While it is unlikely Ashtead investors will see such an enormous return again soon, they should hold on to their shares as there could well be more growth to come.
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