Ashtead Q1 preview: where next for Ashtead shares?

Ashtead has returned to growth and embarked on the next phase of its long-term strategy that will see it open hundreds of new sites over the coming years. We explain what to expect from the results and look at how Ashtead shares could react.

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When will Ashtead release Q1 results?

Ashtead is scheduled to publish first quarter results covering the three months to the end of July 2021 on the morning of Thursday September 16.

Ashtead Q1 earnings preview: what to expect from the results

Ashtead, the rental giant supplying a range of construction and industrial equipment under the ‘Sunbelt Rentals’ brand across the UK, US and Canada, took action after the last recession to diversify its customer base so it could prove more resilient in the future, knowing that its business is cyclical in normal times.

This means Ashtead serves a wide range of industries. As well as supplying equipment needed for more traditional construction of everything from airports to data centres, it is also used for the likes of filming media productions, maintaining theme parks, running music festivals and providing emergency response support.

This paid off in the pandemic, with Ashtead managing to return to growth in the fourth quarter and enter the new year with clear momentum across its markets. The swift return to growth meant annual revenue in the year to the end of April 2021 was down just 1% and underlying EPS dropped 6%, and the focus on generating cash meant it delivered record free cashflow. Its diverse model saw its UK arm benefit from its work helping provide equipment to help with the coronavuris response while its bigger Canadian arm has bounced back thanks to demand from the TV and film market. Meanwhile, its largest division in the US posted the slowest revenue growth in the final quarter and has the biggest potential to grow going forward.

The increase in demand should continue in the first quarter, with Ashtead well positioned to benefit as the economy recovers from the pandemic.

Importantly, this will be the first set of results that will see Ashtead publish earnings in US dollars rather than sterling. Investors should be aware that the below estimates are in sterling and will differ from the final outcome in dollars, and are better used as a guide as to what sort of growth analysts are expecting. The switch to dollars has been long overdue considering Ashtead makes over 80% of revenue and profits in the US.  

Analysts currently forecast that revenue will rise 7.5% to £1.29 billion in the first quarter from £1.20 billion the year before. Ebitda is seen growing 8.3% to £593.6 million from £547.9 million. Underlying EPS, which strips out exceptional items, is forecast to increase 48% to 51.35p from 34.7p.

There will undoubtedly be a focus on ‘Sunbelt 3.0’ – the next phase of its strategic plan that started in April. Ashtead implemented the next phase after completing ‘Project 2021’, which led to revenue more than doubling between 2016 and 2021. The central goal to this part of the long-term plan is to continue expanding and add a further 298 new locations across North America with the goal of having 1,234 sites by 2024. The job in the UK will be to overhaul the business to deliver better and more sustainable margins. However, investors will be wary about how the plan and increased spending will weigh on cashflow following the record performance last year, with Ashtead intending to also invest in existing sites and continue making bolt-on acquisitions.

Where next for the Ashtead share price?

The Ashtead share price has been steadily trending higher since early November last year. The stock trades within an ascending channel from that data, and also above its 50 & 100 sma in a firmly bullish chart. 

The RSI is supportive of further gains whilst it remains out of overbought territory. The stock is trading around its all-time high. 5950, the midline of the rising channel, could be a near term target. 

On the flip side, support can be seen at 5590 the 50 sma and also the lower band to the rising channel. It would take a move below 5450 for the sellers to gain traction towards 3510 the 100 sma. 

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