Ashtead shares plummet as equipment rental firm lowers profit expectation
British equipment rental firm Ashtead Group on Monday said its annual profit would come in below market expectations, as its shares dropped more than 10 per cent this morning .
The company said it was due to lower emergency response activity dragged its U.S. business and the company expects to take a more than £1.6bn ($2bn) depreciation charge for the year.
The London-listed company cited various reasons for its downbeat outlook, including lower levels of emergency response activity with a much quieter hurricane season, and fewer naturally occurring events, such as wildfires.
The FTSE 100 company, which competes with the likes of United Rentals in the United States, serves construction, emergency response as well as entertainment markets in the U.S., UK and Canada, renting out equipment ranging from diggers to construction tools.
The impact of the Hollywood actors’ and writer’s strikes, which hurt its film and television business in Canada, have persisted longer than anticipated with some impact on the rest of the Canadian, U.S. and UK businesses that rent into that space, Ashtead said in a statement.
The company trades under the name Sunbelt Rentals in the United States, its largest market.
Ashtead lowered its annual group and U.S. rental revenue growth forecast to 11%-13% from 13%-16% and said net interest costs would amount to about $540 million for the year.
“It may seem unfair to drive a share price down by more than 10 per cent when the profit forecast downgrade is only two per cent to three per cent , but investors do not seem to be in a forgiving mood when it comes to Ashtead’s less optimistic trading outlook”, said AJ Bell investment director Russ Mould. “In many ways, the equipment hire specialist is a victim of its own success. Shareholders have enjoyed a string of upgrades to earnings estimates in the past couple of years, so even this very mild disappointment has come as a considerable shock.
“After a softer-than-expected end to Ashtead’s second quarter, management is shaving down its rental revenue growth forecasts for the USA to 11% to 13% for the year to April 2024, from prior guidance of 13 per cent to 16per cent . As a result, expectations for the group-wide numbers are changing by the same degree – the American operations represented 85% of total sales in the first quarter of the year.
“The US also generated 90% of profits in the first three months of fiscal 2023-24 and as a result chief executive Brendan Horgan and team are now shaving 2% to 3% off earnings forecasts for the year, based on the metric of earnings before interest, tax, depreciation and amortisation (or EBITDA).
“Before the surprise announcement, analysts had been looking for $5.2 billion of EBITDA in fiscal 2024, up 17 per cent from $4.4 billion in the twelve months to fiscal 2023. A figure nearer to $5 billion now seems more accurate, given the revised outlook.
Reuters – Eva Mathews