Wednesday, 2 September 2015

Ashtead - a rare beast: a good value growth stock

I talked about the UK-listed (but predominately US focused) plant/heavy equipment company Ashtead way back in June last year (link here).  Since then the company has performed pretty well...although some combination of sector peers struggling and of course US growth concerns has pulled the shares back in recent months:

So a good time to look at the stock following the publication of their Q1 numbers which at face value looked pretty good in terms of growth levels

Of course not all of this was organic growth with 'bolt-ons and greenfields' playing an important role as the company continues to expand its range of distribution depots (and hence market share) especially in the United States: 

The market share gains by the company via its Sunbelt and A-Plant brands over time have been very clear...

...growth though comes at a price and that has been the recent capacity utilisation statistics which are lower than the equivalent 2013-15 period.  However this is improving and the company noted in August that this is continuing. Given the headline growth and ex the small oil/gas exposure (see below) good pricing I am fairly relaxed on this front.  

Additionally with anticipated construction activity picking up... the company downplayed fears about the oil/gas exposure (very small proportion of their business):

Additionally they were successful in pushing down the debt level too (the conference call included a pledge to keep the leverage ratio to below x2)...

 ...which allowed the company to give strong guidance even as they noted they would like to grow from 520 locations currently to around 800.

Unsurprisingly - as noted on the far right of the share price chart above - the share bounced strongly today.  However at only a high single digit prospective full year EV/ebit valuation I still see scope for the share to return to the 1200p+ level seen earlier this year.

In short - and despite fears in the market - I see Ashtead as that rare sort of beast: a good value growth stock.  Yes a weaker US economy would not be good news but ironically the immediate impact would be stronger cash flow and utilisation levels, metrics the bears on the stock want to see improve. I still think a 1200p target is a reasonable expectation.

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