FTSE treading water ahead of US rate call, and Ashtead is a money-making machine

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“The FTSE 100 was flat on Tuesday with the US Federal Reserve very much in focus. It feels like the market is setting a lot of store in what emerges from its two-day meeting on interest rates,” says AJ Bell Investment Director Russ Mould.

“If Fed chief Jerome Powell and his colleagues don’t at least hint at a future rate cut, then a negative market reaction looks very likely, particularly with tensions continuing to escalate in the Middle East and trade wars humming away in the background.

“The stance taken by the Fed is also likely to set the tone for stocks in the second half of 2019."

Ashtead

“Get the execution right and construction rental companies can be money-making machines. That’s exactly how you can summarise Ashtead which has reported the kind of revenue, profit and dividend growth that most companies can only dream about.

“This business has been in a sweet spot for a long time thanks to a vibrant US construction market and a structural shift from owning to renting equipment.

“Investors have made significant amounts of money owning the shares under the leadership of Geoff Drabble. He stepped down in May and handed over the CEO baton to Brendan Hogan. The big question is whether Hogan wants to do something radically different with the business.

“He joined the group in 1996, working for Ashtead’s US business, Sunbelt. As someone who has already been with the group for a long time it seems plausible that Hogan will continue the same path as Drabble and focus on execution rather than taking the business in a new direction.

“While Ashtead has delivered superior returns on a long-term basis, more recently its shares have taken a wobble. They are down by a fifth since reaching an all-time high just about the £24-a-share mark last October, thanks to worries over the US and global economy. Ashtead gets roughly 90% of its sales and profits from its US operation Sunbelt with the UK’s A-Plant responsible for most of the rest.

“The latest financial results will offer a lot of reassurance that the business is ticking over nicely. Management have flagged that their longer term planning is focused on the next economic downturn to ensure it stays healthy and has the financial firepower to take advantage of opportunities in a weaker market.”

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