Ashtead Group, a British equipment rental firm, announced on Tuesday a downward revision of its annual UK rental revenue growth forecast. The adjustment comes amid what the company termed “softening market conditions.”
The London-listed company, known as Sunbelt Rentals in the United States, has had a relatively solid year with its shares gaining about 10%, compared to the slightly weaker FTSE 100. However, the announcement led to a 4.9% decline in its share price during morning trade.
Despite the revised outlook for the UK market, Ashtead Group retained the remainder of its financial guidance. In its latest financial report, the company revealed an 11% increase in adjusted pretax profit, amounting to $615 million for the first quarter ending July 31.
CEO Brendan Horgan expressed confidence in the company’s overall performance, stating, “Despite the UK market conditions softening, we expect overall performance to be in line with our expectations, and the board looks to the future with confidence.”
Inflationary Pressures Weigh Down UK Business
The UK division of Ashtead Group has faced challenges due to inflationary pressures affecting its cost base and margins.
Analyst Susannah Streeter of Hargreaves noted, “Ashtead is seen as a bellwether of economic health and its latest update is a warning for deteriorating conditions in the UK. While the warning lights have been flashing …the extent of the fall in guidance has come as a shock.”
Ashtead Group operates in the United States, the UK, and Canada, serving various sectors, including construction, emergency response, and entertainment, by renting out equipment ranging from diggers to construction tools.
In the United States, its largest market, the company anticipates benefiting from a growing number of mega projects, such as data centres, electric vehicle battery plants, and infrastructure initiatives, as well as recent legislative actions.
RBC Capital analysts highlighted, “The proliferation of ‘mega-projects’ …which currently represents ~30% of construction starts and favour rental suppliers with scale, product breadth, and financial capacity, also strongly suggest that the largest rental suppliers will outperform the wider market.”
However, Ashtead Group reported that its Film & TV business suffered a severe impact due to strikes by the Writers Guild of America and Screen Actors Guild in Canada.