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Jefferies reiterates 'buy' rating on Ashtead, Peel Hunt ups price target
Analysts at Jefferies said equipment rental company Ashtead is continuing to play the long game, targeting growth and market share gains.
With Ashtead's fourth-quarter pre-tax profits coming in just 1% below expectations, Jefferies believed that the firm's yield, at flat year-on-year, was simply a factor of the business, given the company's maturity and point in the cycle, and that currently, with a lot of market share gain potential and further runway for volume growth, cannibalising its annuity growth with customers for aggressive rate rises would be unhelpful.
Jefferies said that despite the decline in the drop-through seen in Ashtead's rental revenue growth in the fourth quarter, that had been the result of a number of items, including some one-offs, while the fall in its Canadian margins at the EBITDA level was solely the result of one-off costs linked with the integration of its newly acquired CRS business in Canada.
Hence, it left its underlying assumptions "largely unchanged" even as it factored-in the recent tailwind from foreign exchange and slightly higher interest costs.
Looking ahead, the broker forecast rate rises of between 2%-3%, although yield was likely to still be a drag. For fiscal year 2019, the broker expected volume growth of 12% and yield improvements of 1% from its Sunbelt Rental wing.
All in all, Jefferies reiterated its 'buy' rating and 2,750p target price on Ashtead's stock, while over at Peel Hunt, analysts lifted their target price on Ashtead from 2,300p to 2,500p following the firm's "excellent" annual results.