Many investors will be familiar with tool hire business Ashtead (AHT), the best performing FTSE 100 stock over the past 20 years with a 21,934% total return.

Lesser known is subsea solutions business Ashtead Technology (AT.:AIM) which was spun out of the FTSE 100 group. It was sold to a management-led buyout backed by Phoenix Equity Partners in 2008 and last year floated on the UK stock market.

Despite a difficult backdrop in the wider market, it has performed creditably, backed by solid operational performance and several earnings upgrades, the latest of which happened on 10 October.

We believe the momentum can be maintained and investors should buy with the twin themes of energy security and transition to renewables supportive to the business whatever the
economic weather.

Despite their strong run the shares still trade on just 12.6 times forecast earnings for 2023. The company is forecast to pay a dividend for 2022, and though the yield is less than 1% there is scope for it to grow from this low base.

With more than 200 staff operating from nine global locations, Ashtead Technology has an equipment rental fleet of 17,000 assets. Alongside this range of underwater equipment,
it also provides integrated services and custom-built solutions.

The business enjoys strong profitability. Numis forecasts 2022 operating margins of 26.6%, up from 25.7% year-on-year despite additional operating investment and rising input costs.

The company serves both the traditional energy industry – oil and gas – alongside the emergent renewables space. Critically, CEO Allan Pirie tells Shares 85% of the company’s capacity is transferable between these two sectors.

While demand on the oil and gas side is strong now, this inherent flexibility means Ashtead Technology should continue to be well placed as the world shifts out of fossil fuels.

‘This is a high-volume, high-turnover business with high levels of interaction with customers,’ says Pirie. As he observes this provides the company with unrivalled insight into how its clients are viewing the wider market.

There are similarities between Ashtead Technology’s approach and that of its former parent, beyond a focus on hiring out equipment, namely it has boosted growth through bolt-on acquisitions.

With a net debt to earnings ratio of less than one times the company has the firepower for further deals.

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