Ashtead and WPP

Tuesday, December 11, 2018 - 10:37

“UK markets have started to bounce back after yesterday’s Brexit calamity. The FTSE 250, which is considered the benchmark index for UK-focused companies, has nudged up 0.2% to 17,526 although that still leaves it trading well below the 21,324 year-to-date high. “The FTSE 100 achieved a stronger lift, advancing 0.7% to 6,766 off the back of gains in the mining and oil sectors, plus support from utilities and consumer goods stocks. “Markets hate uncertainty and the even bigger question marks over how Brexit will now play out should theoretically have kept weighing on the market until Prime Minister Theresa May updated on her renewed talks with the EU. “The fact that markets are actually moving forward shows that investors are perhaps scouting around for bargains amid this year’s turmoil rather than sitting on their hands in fear,” says Russ Mould, Investment Director at AJ Bell.


“Guidance for better than previously expected full year results from Ashtead has put a rocket underneath its share price.

“The construction equipment rental expert is benefiting from a well-invested business where it is able to offer a broader product range on a wider geographic basis into a market enjoying structural growth. As such, it is mopping up market share and driving earnings at quite a rate.

“Drill into the numbers and you’ll see a continuation of a long-standing trend that its US business is doing exceedingly well while its UK business is finding life very hard, albeit not disastrous.

“The US is the key focus for Ashtead where construction spending is growing faster than GDP, driven mainly by private non-residential building and big infrastructure projects, according to US Census Bureau data. The company is also increasing its presence in Canada.

“Ashtead consistently invests in its existing business and also makes bolt-on acquisitions. This is driving high rates of growth and the company is also managing to remove costs and generate bucket loads of cash, so it can afford to push through large dividends hikes, much to the delight of shareholders.”


“Advertising giant WPP has historically had lots of moving parts, partly the result of an acquisition strategy based on buying a large number of smaller companies.

“The acrimonious departure of founder Martin Sorrell earlier this year made a change of course possible.

“The thrust of today’s strategy update from new chief executive Mark Read is a streamlining effort to result in fewer, more integrated individual businesses within its portfolio.

“Perhaps sensibly the company is being quite cautious with its future guidance on organic growth, cost savings and margin performance.

“The market may be somewhat disappointed that the sale of the Kantar market research business will only be announced by the second quarter of 2019 – with WPP looking to maintain a significant minority interest. There are also plans to sell other under-performing parts of the group.

“Interestingly a preference for dividends over share buybacks has been expressed. A pledge to maintain full year dividends at 60p, implying a generous yield at the current share price, will be welcomed on one level.

“It could also be seen as a missed opportunity for a more radical rebasing of the payout which would have enabled more capital to be invested in the transformation of the business.”

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

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.