Ashtead Raises Revenue Guidance for the Third Consecutive Quarter

No-moat Ashtead AHT continues to execute on its growth strategy and raised its revenue guidance for the third consecutive quarter. Management revised its full-year group revenue outlook to 21%-23%, an increase from the previously upgraded guidance of 18%-21%. However, the capital-intensive nature of the business means growth is met with incremental additions of capital investment, which sees the group’s free cash flow guidance unchanged at $300 million. While we plan to adjust our estimates (mostly to include a greater revenue contribution from acquisitions), we reiterate our GBX 4,350 fair value estimate. Shares are fairly valued.

U.S. rental revenue (approximately 80% of group revenue) has grown 25% during the first nine months of the year, of which 6% is through bolt-on acquisitions. Ashtead has spent $970 million on 38 acquisitions during the year, helping bolster its store count by 120 in North America. Given the largely fragmented nature of the industry, we expect this theme to continue. Ashtead is using acquisitions to expand its equipment fleet in anticipation of several large U.S. infrastructure and nonresidential projects that have longer rental duration. EBITDA has grown 25% during the nine months year to date, the same pace as group revenue, supported by 8% price increases on U.S. rental equipment and higher volumes helping to offset staff and transportation inflation.