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Ashtead profit boost: Can USD earnings boost flagging AHT stock price amid sterling crash?

By David Burrows

10:36, 28 September 2022

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AHTl
Ashtead
49.80 USD
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Dollar note and pound coin. Photo: Getty
UK companies with large earnings in the US could benefit from weak sterling. Photo: Getty

There is some truth in the saying ‘it’s an ill wind that blows nobody any good’.

With sterling plummeting in value right now, there will be certain UK businesses (with a large percentage of earnings from overseas) that might benefit from a currency meltdown.  

One such stock is Surrey-based Ashtead Group (AHTI).  The construction and industrial equipment provider has large operations in both the US and Canada – in addition to its UK business.

So, might USD earnings boost AHT’s stock price amid a sterling crash?

Ashtead Group share price chart

The answer is - it could. Put simply, if a business sells its goods and services in one currency and banks its revenues in another, there will be a further gain or loss on the transaction depending on the exchange rate at that time.  

The impact on profitability is increased if costs are incurred and revenues received in weaker and stronger currencies, respectively.

It is quite common for FTSE 100 listed companies to see their stock price rise as a result of their proportionately high overseas earnings.

Ashtead is a FTSE 100 company and it fits this profile.

Earlier this month the group reported impressive results on the back of healthy demand for its products in the US.

The industrial equipment rental company revealed revenues jumped by just over $400m to $2.26bn in the first quarter, while pre-tax profits increased by 28% to $527m.

Rental revenues in the US also grew by over a quarter thanks to strong performances by its general tool business and specialty divisions.

The UK performance was not so strong and while US dollar earnings may be a boost, the company will still feel the impact if a deep UK recession sets in.

US30

34,583.00 Price
+2.270% 1D Chg, %
Long position overnight fee -0.0163%
Short position overnight fee 0.0058%
Overnight fee time 22:00 (UTC)
Spread 2

HK50

19,175.00 Price
+5.020% 1D Chg, %
Long position overnight fee -0.0295%
Short position overnight fee -0.0149%
Overnight fee time 22:00 (UTC)
Spread 31.0

US100

12,054.10 Price
+4.790% 1D Chg, %
Long position overnight fee -0.0161%
Short position overnight fee 0.0057%
Overnight fee time 22:00 (UTC)
Spread 1.9

US500

4,087.40 Price
+3.290% 1D Chg, %
Long position overnight fee -0.0162%
Short position overnight fee 0.0057%
Overnight fee time 22:00 (UTC)
Spread 0.7

Also, a significant volume of acquisitions has increased the company’s net debt - at the end of July the figure was more than $2bn higher than at the same time last year.

Danni Hewson, financial analyst at AJ Bell sees some positives and negatives for Ashtead as we head through 2022.

“Ashtead’s share price has enjoyed a small bump since the chancellors ‘mini-budget’ last week with the fall in the value of the pound expected to make its services look cheaper and more desirable to a US market.

“But rising mortgage prices in the US linked to the aggressive rate hike policy being pursued by the Fed will impact the housing market and is likely to slow some future development.

She adds: “There’s also the anticipation that beating inflation will result in an economic slowdown both in the US and globally. Short term this is likely to be bad news for the equipment rental company but longer term big infrastructure projects might get green-lit by governments wanting to create economic momentum.”

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AHTI attractively valued?

Investors may not, as yet, have seen any reason to pile into AHT on the basis of currency benefits alone.   

However, the stock did rise today from 3,803p at opening to 3,910p by late morning.

And from a historical perspective, the stock is at a low level – in mid-November 2021, AHT shares were trading at around the 6,450p level before dropping sharply. They have never been close to this price since.

Is Ashtead stock at a decent value right now at around 3,910p?

Marketbeat shows analysts are largely positive on the stock right now. Out of eight brokers, three rate AHT a ‘buy’ right now and five a ‘hold’ The consensus price target for the stock is 5,237.50p.

However, Simply Wall St takes a different stance. It views Ashtead around the current 3,910 level as trading above its  estimate of fair value at 3,7670p

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The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
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