Ashtead Earnings: Strong Rental Revenue Growth Underpinned by U.S. Legislation

No-moat Ashtead AHT reported first-quarter rental revenue growth of 14% year over year, tracking in line with its unchanged full-year guidance of 13% to 16%. Strong demand is underpinned by recent U.S. legislation, which has led to several large infrastructure and commercial projects requiring rental equipment. Strong demand has resulted in increased rental rates, supporting first-quarter EBITDA growth of 18%. The capital intensity of the business is reflected by more than $1 billion capital expenditure during the quarter, which resulted in free cash outflow of $139 million as incremental fleet investments are required for the business to grow. We maintain our GBX 4,350 fair value estimate and view shares as fairly valued.

U.S. rental revenue grew 16% during the quarter, of which 13% was organic. Subdued U.K. rental revenue growth of 1% is due to its high prior-year comparable, which included work performed for the U.K. Department of Health. Ashtead’s acquisition strategy continues; it has spent $361 million on nine acquisitions during the quarter, helping to bolster its store count by 16 in North America. We expect this theme to continue given the fragmented industry structure and no financial debt maturing until 2026. Profit before tax grew 11%, a slower pace than top-line growth due to higher interest rates, which may slightly lower the cadence of bolt-on acquisitions in future. Free cash flow guidance of $300 million remains unchanged from the previous quarter.