Ashtead Earnings: Growth Investments Support Impressive Earnings Increase; Fair Value Maintained

No-moat Ashtead reported 22% rental revenue growth during its 2023 financial year, the midpoint of its guidance, which had been upwardly revised during the previous three consecutive quarters. Free cash flow of $531 million was ahead of our $300 million estimate but mostly driven by the late delivery of certain fleet equipment; thus, free cash flow is expected to decline to $300 million during the current fiscal year. Management has guided for 13%-16% rental revenue growth, of which one third relates to price increases. The anticipated decline in full-year free cash flow year over year despite double-digit revenue growth highlights the capital intensity of the business, which requires incremental additions of capital investment to grow. While we plan to revise our forecasts, we reiterate our GBX 4,350 fair value estimate. The shares appear fairly valued.