Ashtead benefits as supply constraints boost rental market

Ashtead chief executive Brendan Horgan said he expected the equipment group to be able to take advantage of supply chain constraints for another 18 months as more companies have opted to rent machinery because of the lack of supply for sale.

The FTSE 100 company hires out scaffolding, excavators and other equipment and has benefited from disruption in supply chains, which have made it harder for businesses to source such goods.

Ashtead said on Tuesday that revenue was up by a fifth in the year to the end of April, at $8bn and profit before tax rose by 35 per cent to $1.7bn.

The Covid-19 pandemic and lockdowns disrupted global trade, causing component shortages and logistical bottlenecks, which have hit the production of equipment across industries.

Horgan said problems with supply chains and the delivery of goods were still big concerns for the world economy. “When it comes to the economy, the world is worried about three things: supply chain constraints, inflation and labour scarcity,” he said.

He noted that there was an “ongoing shift from ownership to rental” which he said was set to “last for years”.

Limited equipment supply had increased the uptake rate of Ashtead’s goods among its customers based in the US, Canada and the UK.

“Today, when you think about: can you get [equipment] when you need it, if you want to buy it? The answer is undoubtedly going to be no,” he said.

However, Ashtead, which generates about 80 per cent of revenue from the US, is still exposed to concerns over the outlook for economic growth. Its share price, which leapt during the pandemic, has fallen by 40 per cent since the start of this year and was down 4 per cent on Tuesday.

“Investors have macroeconomic concerns that North America is going to slow down and possibly go into recession,” said Andrew Nussey, analyst at Peel Hunt. “So it’s this concern that is outweighing Ashtead’s continuing strong delivery.”

He said it would be easy to compare the current situation to the knock-on effects of the global financial crisis on the US rental market. But he thought Ashtead was in a strong position. “Look at how [it] has proved its model during the pandemic. It’s sentiment versus reality.”

In the UK, Horgan said there were a number of longer-term projects and events which he expected would support demand for equipment. “We’ve got Glastonbury coming up, the Chelsea Flower Show, so there are signs of a return to normalcy,” he added.

However, he expected labour constraints, more broadly, to remain an issue. “As a society, whether the US, Canada or the UK, we retire more skilled trade, from commercial drivers to plumbers, than we create every year. Therefore, we think there are real challenges there for the foreseeable future.”