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City News : Market mayhem
Catherine Stratton assesses the current state of the Stock Market and considers Ashtead's first quarter results.
The hurricanes in the Caribbean this September seem like breezes compared with the turbulence sweeping through the world’s Stock Markets. At the time of going to press, the volatility has been given further impetus by growing uncertainty over whether the US government will be able to steer its massive rescue package through Congress and, even if it succeeds, there remains the enormous question of the long term consequences for the US economy and, by implication, for the rest of us. Almost all shares have been savaged and it is not surprising that those of construction and allied industries are continuing to suffer as our table shows. Ashtead’s first quarter figures, however, prompted a positive reaction from investors with the shares rising 10% to a 2008 high of 85p. In the three month period the company continued to grow revenues by over 5% in the US and nearly 8% in the UK and its profits were ahead of analysts’ forecasts. The £90m net proceeds from the sale of Ashtead Technology in late June have contributed to reduced gearing as debt fell by £111m in the quarter to £852m.
Ashtead achieved a 70% utilisation rate in both the US and the UK. The Sunbelt fleet is 8% larger than in the first quarter of 2007, but the company indicates that yields have fallen by 5%, indicating lower rental rates. In the UK, A-Plant has invested heavily in the past year and its fleet is now 16% larger, with the yield falling by 8%. During the three months, Group capital expenditure was £108.5m (2007: £124.2m).The average age of the fleet at the end of the period was 31 months, compared with 29 months a year earlier. The company indicated that gross capital expenditure for the full year would be £230m (approximately two-thirds of the level of last year) and would be predominantly replacement expenditure.
Commenting on the results, Ashtead Group Chief Executive Geoff Drabble concluded, “despite the current economic uncertainty, our operating businesses continue to perform well and our financing costs continue to be lower than last year as we reduce debt. The board anticipates the Group continuing to trade in line with its expectations for the remainder of the year.”
Despite its 42% jump in half year profits, Aggreko saw its shares fall 19p to 692.5p on the announcement in late August and they have fallen further since, despite Chairman Philip Rogerson’s assurance that the Aggreko board expected the company’s performance to exceed market expectations in the current year. Demand in North America and Europe is softer, but this is being more than offset by strong growth in Asia, Africa, the Middle East and Central & South America. In order to meet this demand the company is increasing capital expenditure; in the first half of the year it was up by almost 50% to £124.3m and the full year figure is expected to show a similar percentage rise to £265m. The decline in the share price, however, suggests that the Stock Market is adopting a more cautious stance towards the shares, which have performed so well until recently.
At the Vp AGM in September, Chairman Jeremy Pilkington confirmed the “good start” to the new financial year described in the Group’s Interim Management statement issued three weeks earlier. He added that Vp was “alert to the challenges presented by the broader economic environment and their impact on specific markets” but it continued “to benefit from the diversity of markets” it serves. •