Ashtead

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“The FTSE 100 is not having a good time of late and trading on Tuesday takes the blue chip index down a further 0.2% to 7,266. Investors saving for their pension, new house, children’s school fees, loft conversion or any other major expenditure will be frustrated at how the UK market has performed this year as there is a high chance their portfolios will have exposure to UK equities,” says Russ Mould, Investment Director at AJ Bell.

Ashtead

“For all the glamour of tech stocks grabbing investors’ attention, you’ll find that it is often boring companies which deliver superior returns over time and Ashtead definitely fits the bill.

“The construction equipment rental group has once again said that results will be ahead of expectations, prompting the share price to make a good attempt at challenging its all-time high.

“Ashtead’s qualities are very clear to see: it generates lots of cash which is ploughed back into the business to help it build scale as well as fund generous dividends for shareholders. It has been enjoying a structural growth market for a long time where construction companies prefer to rent equipment rather than buy outright.

“The US business Sunbelt generates the bulk of Ashtead’s profit and is currently seeing growth driven by a greater amount of fleet on hire, although the percentage of its overall fleet being rented out has stayed flat at 73% average utilisation rate.

“The challenge for Ashtead is to make sure it isn’t left with excess fleet should demand suddenly drop. It is a highly cyclical business and would clearly be vulnerable to a construction market and/or wider economic slowdown.

“It is also worth considering the business is undergoing a big change at the top. Ashtead has either recently changed, or will soon change, its chief executive, chairman, finance director and boss of the UK operations.

“Reshuffles of such scale run the risk of change in how the business is run. With Ashtead, the current model clearly works and shareholders will not want any radical change in strategy.

“All eyes will be on chief operating officer Brendan Horgan who has been lined up to replace Geoff Drabble as CEO sometime in the future. He was promoted to COO earlier this year alongside his existing role of running Sunbelt.”

These articles are for information purposes only and are not a personal recommendation or advice.