Stock of the day Ashtead

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By :  ,  Financial Analyst


Ashtead are due to release their first half results on Tuesday and to say these are keenly awaited would be an understatement. US focus The US economy is currently going from strength to strength, which provides a solid base for Ashtead business, given that the equipment hire firm earns around 90% of its revenue in the US, from its stateside division Sunbelt. Added to this, the firm is expected to have received a boost from repair and maintenance work stemming from the disruption caused by a particularly damaging and devastating Hurricane Season in August and September earlier this year. 

Tax cut beneficiary  

The other positive element for Ashtead is the US tax reform. Both the house and the Senate have approved their own version of the US year reform bill, which is now being reconciled. Investors are optimistic that a combined, approved version of the US tax reform bill will be on President Trump’s desk for signing before Christmas. This bill includes a meaningful tax cut, which lowers the corporate tax rate from 35% to just 20%. This is good news for Ashtead, who are a significant perceived benefactor of the US tax reform bill. 

Infrastructure spending  

The final point to keep in mind is that demand for Ashtead services are likely to increase as infrastructure spending increases across the globe but particularly in the US. Trump has been focusing heavily on his tax reform bill, which has left the infrastructure spend plan to die a bit of a death. However, last week, reports suggest that Trump’s$1 trillion infrastructure plan, which was a central pillar of Trump’s Presidential campaign will be released in January. Should trump manage to put together an infrastructure spending plan anywhere near this size, Ashtead could benefit enormously. 

Result expectations  

Ashtead is no stranger to pumping our double digit earning improvements year after year. The year ending April ’18 is expected to be no different with a 16% improvement on the bottom line being pencilled in. Tomorrow we are expecting underlying earnings to be £907 million. Meanwhile, Numis securities are forecasting an 18% increase in pre-tax profit, year on year, on Tuesday to £560 million. RBC Capital and JP Morgan Cazenove have recently upped the target price to 2400p. This represents an almost 20% increase from today’s valuation of 2000p.

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