It is an ill wind that blows nobody any good. The truth of that proverb is already beginning to be appreciated in the wake of Hurricanes Harvey, Irma and Jose in the US and the Caribbean. Businesses such as Ashtead, an equipment rental company with national networks in the US and the UK and a small presence in Canada, will clearly benefit.
“The supply-demand dynamic has changed,” said Geoff Drabble, Ashtead CEO, when discussing his company's unaudited results for the first quarter ended 31 July. “There will be a significant clear-up programme,” he added, describing this as a major asset. “We are shifting hundreds of trucks into the areas affected.”
“A major rebuild programme will be required over several years.” The destruction of heavy equipment by the hurricanes will further distort rates, he explained to analysts. “We are salivating at the prospect. We have specialist equipment that general rental companies don't have.”
The Ashtead business
Ashtead rents a full range of construction and industrial equipment across a wide variety of applications to a diverse customer base. Its equipment can be used to lift, power, generate, move, dig, compact, drill, support, scrub, pump, direct, heat and ventilate.
Whatever, in short, is required in areas just devastated by some of the fiercest winds in recorded history. The CEO briefly described the commercial impact only after outlining his concerns about Ashtead staff and their families.
Rates were already improving ahead of the hurricane season as a series of projects began to ramp up in volume. Equipment coming back in from rental is going out at higher rates, sometimes much better rates, he explained. The impact of those higher rates will quickly feed into financial figures.
Consistent improvement in rates
“We are seeing a very consistent improvement in rates,” he says. “We are feeling very good about the rate environment at the moment.” Ashtead Group total revenue was up 16% in the first quarter, compared with the same period a year earlier. Pre-tax profit rose 21%. Earnings per share were up 20%.
Free cash flow was £417m against £23m in the first quarter of 2016. Other improvements included the refinancing of existing US$900m 6.5% notes due 2022 into $600m of 4.125% notes due 2025 and $600m of 4.375% notes due 2027.
Finance director Suzanne Wood said this refinancing, combined with the extension of an existing $3.1bn asset-back loan facility to 2022, strengthens the Ashtead balance sheet and gives it a competitive edge.
The share price reacted positively, rising by 8.59% at one point mid-morning. Independent UK stockbroker The Share Centre recommends Ashtead as a buy for medium risk investors seeking growth.