Ashtead Share Discussion Threads

[2flatpack] 23/6/2016 10:31

Good on you Ian
I'm hoping for a steady rise in S/P without so many buying opportunities.
With the buyback in place I will be looking to add once all the excitement has died down.
Once the S/P has moved back up, I am hoping for a consolidation phase ,from the young exiting growth company to a boring old growth company with perks .
As ever, I live in hope
Cheers

[ianwwwhite] 23/6/2016 09:10

Sold a small speculative holding bought for £9.00 and sold £10.39 to take a modest profit, and reduce my holding. My core holding remains intact.

[discodave4] 21/6/2016 19:56

Thanks 2flat, interesting.......Mr Drabble certainly knows this business inside out!.DD

[2flatpack] 21/6/2016 16:04

DD
I forgot about your love affair with Deutsche, see below their Q&A's.
Cheers

Roberts, Deutsche Bank. A few from me, please. First, on the Sunbelt ROI, which looks like it is the lowest since 2012 because of the investments that you've made. Given the ongoing greenfield expectations and CapEx, when do you think that might return to levels --

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Geoff Drabble, Ashtead Group plc - Chief Executive [38]

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I think you start seeing an improvement this year and the reason being the reduction in the replacement CapEx. Remember, if you're -- replacement, big replacement CapEx in de-aging the fleet is an absolute killer in terms of ROI. So if we go back to one of these charts -- hang on a second. As I said, I'll be a lot better in a week's time, with what page everything is.

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Suzanne Wood, Ashtead Group plc - Finance Director [39]

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17.

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Geoff Drabble, Ashtead Group plc - Chief Executive [40]

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Is that this one here?

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Suzanne Wood, Ashtead Group plc - Finance Director [41]

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Yes.

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Geoff Drabble, Ashtead Group plc - Chief Executive [42]

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No, 22. Let's go back to page 22. Let's imagine we are getting this rental rate for an old asset, okay? So I am now getting a rental rate of $112 on a seven-year asset. My ROI is $112 divided by 100.

I sell that asset. I might get $114 or something, because it's a newer asset; but my denominator's now $141. Look how much my ROI changes by. So when you've -- in a period where we've had such high replacement CapEx, it is that replacement CapEx that's killed ROI and because literally, that's the calculation.

The day before we sell the asset, that asset -- we haven't got any more assets and the ROI literally falls by that amount. It's a staggering drag on our ROI. Now that we are -- that is a bigger drag than greenfields. It's the moderating of replacement CapEx.

Now, the problem is it's going to take a year for that to work its way through; but by this time next year, we should start to see it ticking back up again. Like I said, if we ended up with an average fleet age, on what we could consider a normal fleet age, then you add about 2% ROI. But that's the biggest killer.

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Emily Roberts, Deutsche Bank Research - Analyst [43]

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My second question is around the operational improvements that you've made. How much left is there to go for? And what's your confidence that if the top line does start to look less positive, how much is there that you could take out to keep the operating profit more stable than your top line, please?

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Geoff Drabble, Ashtead Group plc - Chief Executive [44]

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Yes. No, I mean, again, I think it's a good question. I think there's a lot to go at. I think we are starting our journey in terms of some of our efficiencies.

So we now have trackers in trucks; we have trackers on equipment; we have use of those. You, in Florida, saw we now have that delivery program; we have automatic maintenance records, which prioritizes work in the workshop. All of that's beneficial.

But it can all get better. Do we have state-of-the-art delivery routing plans? No we don't. I was interviewing somebody recently who said, do you have the plan that only allows you to do right-hand turns? And I thought, well do you notice then you're back where you started if you do (laughter).

But anyway, this guy was heavily into his routing plans, where it optimized the number of right turns and measured the amount of idling time. So I think there's more to go.

But remember, our biggest self-help is to take that half of our locations that weren't locations five or six years ago. We don't have to do better in the locations we've got: we've just got to mature the locations we've got. So I think there's significant margin enhancement as we evolve those.

In terms of how -- what's the negative drop-through if it goes the other way, it ought to be materially better than it was last time. Because last time, we weren't fully absorbing the fixed and semi-fixed cost base. So you immediately had high drop-through when revenue turned down. We are doing that now, so all of our cost is marginal cost.

Like I said, we're at the stage now where 50% of our operating cost is labor. And without wanting to be harsh about it, that's an incredible variable cost.

If we need less drivers and we need less mechanics, before we were -- in the last downturn, because we weren't covering our fixed costs enough, you don't get rid of the proper center manager, because you need a proper center manager; you don't get rid of four or five mechanics, because that's the base load you need.

As we've leveraged scale, more of our business is built on variable costs, so I am confident that our negative drop-through, and there will be negative drop-through as we go into downturn, ought to be significantly less than it was last time, because of that reason.

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Emily Roberts, Deutsche Bank Research - Analyst [45]

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And then one more from me, please. Appreciate it's a much smaller part of the business, but could you talk us through the A-Plant margin improvement a bit more; how sustainable that is, going forward)

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Geoff Drabble, Ashtead Group plc - Chief Executive [46]

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I think it's very sustainable, in all honesty. I have to say, I thought the April Capital Markets Day was good. There were one or two people raised some probing questions which made us look at how we explain our business to us. And this helped.

If you go into the press release, I can't remember what page it's on, but it tells you that the dollar utilization in Sunbelt is 56%, and the dollar utilization in A-Plant's 52%. But A-Plant had 2% lower physical utilization.

So if they had the same level of physical utilization, you're comparing 56% with 54%, so rates aren't that different because that 2% is down to mix.

So, if you were to look at a skidsteer or a backhoe on a monthly rental here in the UK, it doesn't look any different to a key account job in -- the key is leveraging scale.

So, as we grow and as we broaden the mix of the business, then, again, I think we can see improvements. Okay, it's not as impressive as the 37% revenue per head improvement that we've had in the US yet, but between 2008 and 2016, A-Plant's improved its revenue per head by 21%.

It's a really good improvement and what we're doing is we're putting more volume and a better mix of business through a fixed cost base. That's what we're doing.

And so I think -- I am very confident that we will get to -- that we can get to 20% ROI in the UK. Now, I think it'll take us three or four years. I think we're going to have to continue to focus our acquisitions in greenfields around specialty products but there's some real scale advantages.

Again, if you look at the average fleet per store, the average store in America has about $10 million. This is, again, my round math. You'll get the real numbers from the press release, but we've got about $5.5 billion worth of fleet and we've got 550 stores. So, we've got $10 million of fleet per store. In the UK, we've got about 150 locations and about GBP600 million of fleet. So we've got about GBP4 million per store.

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So the problem with the UK margins is nothing to do with rate, partly to do with mix. It's scale. We need -- and that's what we're doing. We're using our balance sheet to diversify and grow scale because fundamentally, because of the scale, because their average fleet size is $10 million, Sunbelt's just operating higher up this curve than A-Plant is. So, it's very fixable, if I look at a lot of the operating metrics.

Now, the question would be you're probably unlikely to get the same level of scale in a smaller market like this but you could bridge the gap. So I think the improvements are tangible and I think they're sustainable because it's all just about where they both are.

On average, Sunbelt operates around here and on average, A-Plant operates somewhere around there and that's -- it would have the same margins in the US, if it was the same size and same configured business.

[bracke] 21/6/2016 11:42

The share price is now meeting the first of a number of resistances. It will be interesting to see if the share buybacks can push it through. They need to otherwise the gap up from 1000 instead of being a runaway is likely to become common.

Thursday/Friday should settle the situation!

[discodave4] 21/6/2016 09:07

Thanks 2flat,Particularly like the last sentence.........will Deutsche listen and understand though?, somehow doubt it as IMV they have a hidden agenda.DD

[2flatpack] 21/6/2016 08:41

Disclosed shorts up.
Short interest tracker.
.
.
AQR Capital Management, LLC 0.71% ↑ 0.10% 2016-06-15
Blue Ridge Capital, L.L.C 1.23% ↑ 0.09% 2016-02-10
CPMG, Inc 1.54% ↑ 0.12% 2016-05-18
Eminence Capital, LP 0.73% ↑ 0.11% 2016-04-22
Total 4.21%..
.
.
Just reread transcript of AHT's 2016 Q4 Earnings presentation on Yahoo fiance.
As always a great read and full of info.
Below I have posted a Q&A which I think is directed at the shorters.
I must say I am always impressed by Geoff and Suzann's presentations they personify my idea of great management.
Cheers
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Chris Gallagher, JPMorgan. A quick question on the decision to return capital. You may talk -- given the uncertainty, why have you decided to do that now, rather than keep some of it and potentially use it if the market was better than expected?

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Geoff Drabble, Ashtead Group plc - Chief Executive [16]

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Do I sound uncertain? (laughter) What uncertainty? Look, Suzanne I think did a really good job in laying out our waterfall in terms of our priorities for capital, which is we still believe in the growth in the market. So the majority of our funds will continue to go to organic fleet growth, greenfields and bolt-on acquisitions.

The key is now we think we've reached a leverage point which is kind of okay and therefore, somewhere in the mid-range, between 1.5 times, 2 times, given where we think we are in the cycle makes all the sense in the world to us.

Therefore, I think the dividend is an important part of our long-term story and I am very committed to growing the dividend to a level that's sustainable through the cycle because it's a cyclical business. I think it provides an underpin to shareholders which is very valid.

The question then is we then have excess funds available. What do you do with that? Do you do bigger M&A, or do you do something else? Right now, we trade at something like a 10 times [pay], but it's for you to decide what multiples we should trade on. I can't buy anything worth spying for a 10 times PE, okay.

So therefore, I become reasonably agnostic between share buybacks and -- so, to the extent where I think we are operating at a low multiple, we will use our excess funds to buy back shares.

Does that mean I will buy back shares forever at every share price? No, because I think share buybacks make sense if they are enhancing shareholder returns better than other uses for the cash.

You can't buy a 10 year 14% compound annual growth business with 19% ROI and 47% EBITDA margins on a 10 times PE. Well, you can; I can buy my own shares. That's why I'm buying back my own shares.

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[fenners66] 20/6/2016 22:41

Buyback started already 100,000 shares at average 1020 or so.

[bracke] 20/6/2016 18:21

Good day clarky

I'm thinking more of a 1000 test rather than a gap fill but they are one and the same.

[clarky5150] 20/6/2016 18:06

1805 and no sign of Brackes 'gap'. Looks like we are in for a pain free night.

[dcarn] 20/6/2016 15:06

Thanks for that 2flatpack.

[2flatpack] 20/6/2016 14:22

dcarn
As I understand it they are limited by the price they are allowed to pay, so if the price rockets they will have to wait until their running average catches up
..
Chapter 12 of the United Kingdom Listing Rules, which
require that the maximum price paid be limited to be no more than the higher of
(i) 105 per cent of the average middle market closing price of the Company's
ordinary shares for the five business days before the purchase is made and (ii)
the higher of the price of the last independent trade and the highest current
independent bid on the trading venue where the purchase is carried out. The
aggregate purchase price under this arrangement, together with any other Shares
purchased on the Company's behalf pursuant to its buyback programme, will not
exceed GBP200 million.
Cheers

[dcarn] 20/6/2016 13:59

It will be interesting to see if there is any buyback today given we're now 'surging' past £10. It may give us some indication of were the board assume the shareprice should be.

[bracke] 20/6/2016 10:40

A good move this morning on the back of a referendum poll takes the share price well over 1000. Now comes the interesting part.

The share price is likely to drop back to test the 1000 zone. Given that it has previously been strong resistance it should offer equally strong support. If it does then the world if not your oyster should at least be your breaded cod.

[broadwood] 17/6/2016 16:52

Ashtead Group – Buy

Tempus said investors should buy Ashtead Group. Shares in the equipment hire company surged on Tuesday in the wake of its full year results, helped along by the promise of rising dividends and a share buyback scheme. A number of the company’s development plans are now reaching maturity, so capital expenditure will start to fall, while margins in equipment rental have hit a healthy 46 per cent. There’s little sign of a slowdown in its US operation, which forms the bulk of the business, either, leaving the column to conclude that this stock looks undervalued on the fundamentals.

[discodave4] 17/6/2016 15:39

Be nice to see this close above £10.DD

[ianwwwhite] 17/6/2016 11:00

kilgallup


Re 52358, I think we are both on the same wavelength, great results but 'brexit' is making things a bit choppy at the moment. Do nothing and hunker down is still my favoured strategy,

[2flatpack] 16/6/2016 22:10

This early start to the buy back has got my backside off my hands.
An aggressive buy back should underpin the S/P.
If we say 5% shorting that is 25,162,198 shares @ £10 = £. 251,621,980 investment by the shorters.
A £200M buy back = one big headache for some.
I shall start my buy back tomorrow.
Exciting times.
Ha,Ho.
Cheers

[discodave4] 16/6/2016 18:55

BrackeThe consensus rating is buy with an average price target of £1239 hTTp://www.americanbankingnews.com/2016/06/15/ashtead-group-plc-aht-given-sell-rating-at-deutsche-bank/There is only Deutsche though who seem to be forecasting that the end of the world is nigh!.........from the recent results it doesn't look like that to me. IMV eps could be at least 100p for 16/17, and even with a modest PE of 12 is a TP of £12.koobaURI was at least 7% down on early US trading this afternoon, AHT got off lightly!.DD

[bracke] 16/6/2016 18:24

Just a fleeting thought why a couple of brokers have a low rating for the share price

AHT is very cyclical share. If they think that the US is heading for a down turn cyclical shares such as AHT will be hit.

It was just a thought

[discodave4] 16/6/2016 18:15

Nice to see Barclays taking the opportunity to commence share buy back. Quick calcs, if Barclays plan on buying the same volume every day until April 2017, then an average share price of at least £10 should equate to the £200m share buyback target.....will see how many they buy tomorrow!.DD

[kooba] 16/6/2016 17:58

Still biggest faker in ftse 100 seems strange move after strong results? Least off the lows.FTSE 100 - FallersAshtead Group (AHT) 962.50p -3.56%Mediclinic International (MDC) 856.50p -3.27%Anglo American (AAL) 612.40p -2.95%Severn Trent (SVT) 2,128.00p -2.88%

[bracke] 16/6/2016 15:56

Just look at the market!!

[kooba] 16/6/2016 15:55

Anyone know why so weak today?