Ashtead Q3 preview: Where next for the Ashtead share price?

When will Ashtead release Q3 earnings?

Equipment rental outfit Ashtead will release third quarter results on the morning of Tuesday March 8. This will cover the three months to the end of October 2021.

Ashtead Q3 earnings preview

Ashtead delivered record results in the first half of the current financial year. Rental revenue was up 20% from the year before and some 14% higher than before 2019 levels following a strong recovery in demand after being hit hard during the pandemic and thanks to its continued expansion across North America, where it makes most of its sales, following a series of bolt-on acquisitions.

In the US, demand for general tools has rebounded from depressed levels of demand during the pandemic while its speciality businesses have continued to gain momentum. Ashtead also flagged that hurricanes had also driven a rise in demand and added around $60 million worth of revenue in the second quarter alone. The UK business continues to reap rewards by supplying key equipment for the National Health Service’s Covid-19 response, while Canada, where its operations include aiding the TV and film industry, has also bounced back after suffering during particularly tough lockdown rules back in 2020.

These trends should have continued in the third quarter. Analysts forecast Ashtead’s total revenue will rise 58% year-on-year to $1.91 billion from $1.21 billion the year before. That is not only supported by higher volumes but also improved pricing thanks to tight equipment supplies, which Ashtead said was creating a more favourable environment than it has seen for years when it reported its last set of results. The current inflationary environment, which is pushing up wages, fuel costs and the price of materials, is also helping lift prices across the industry. Ashtead was quick to cut costs and non-core expenditure when the pandemic hit demand in 2020, although it has said many of these costs are coming back as activity levels increase.

Revenue from Sunbelt US is forecast to grow 19.9% year-on-year to $1.54 billion, while Sunbelt Canada is expected to rise 17.8% to $124.1 million. Its smallest operation in the UK is set to be the disappointment with forecasts suggesting revenue will come in broadly flat from the year before at $228.3 million, as the boost provided from Covid-19 work continues to ease.

Underlying pretax profit is expected to jump over 77% to $400 million with underlying EPS to follow 74% higher to $0.66.

Ashtead spent $428 million on 10 bolt-on acquisitions during the first half to add 58 new locations across North America, and investors can expect to hear more M&A news after Ashtead said it had already spent $320 million on acquisitions in the third quarter and that figure may have grown before the end of the period. This is a key driver behind Ashtead’s growth, so the level of activity will be closely-watched.

Investors will keep an eye on the full year outlook considering Ashtead should have an idea of how it performed since its financial year came to a close at the end of January. The company upgraded guidance when it released its last set of results and said it was targeting 18% to 20% annual revenue growth. Free cashflow this year is set to fall to $900 million to $1.1 billion from the record $1.38 billion delivered last year.

Where next for the Ashtead share price?

Ashtead shares swiftly recovered after being hit when the coronavirus crisis erupted in 2020, with shares more than quadrupling from their pandemic-induced lows to hit an all-time high of 6572p last December. But the stock has lost over 28% since peaking and today shares trade closer to 4,596p.

Sellers managed to push the stock down to a 10-month low of 4,391p last month before buyers came back to the market. This should be treated as the initial floor for the stock but a break below here could be significant considering the next downside target is the key level of resistance seen a year ago at 4,327p.

The fact the 50-day sma has plunged below both longer-term moving averages since the start of 2022, supported by the bearish RSI and both reinforced by the fact average trading volumes over the past 10-days has risen significantly compared to the 20, 30 and 100-day averages, suggests the current trend is still gaining momentum.

However, the selloff over the past three months has pushed shares well below all three-moving averages, which have provided support to the stock over the past two years to suggest the recent selloff has been overdone. Still, shares would need to close above 5,020p to install confidence that the current downtrend has been broken and allow it to recapture the 50-day sma at 5,296p before going on to target the 200-day sma at 5,614p and then the 100-day sma at 5,720p.

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