Broker snap: Credit Suisse raises earnings forecast for Ashtead

3rd Apr 2013 11:37

Ashtead Group's shares climbed Wednesday as Credit Suisse lifted its earnings forecast for the equipment rental company.The broker raised its April 2014 earnings per share estimate by 20% to 40.3p and target price to 850p from 545p on the back of the company's positive full-year profit outlook and a strong US market. "We have reviewed our forecasts for [Ashtead] against a background of moderately improving US construction end markets and following another much better than expected earnings report," the broker said.Last month the group reported a 26% year-on-year rise in revenue to £333.9m for the three months to the end of January. Pre-tax profit rocketed 173% to £53.8bn.At the time Chief Executive Geoff Drabble said the firm anticipated a full-year profit ahead of earlier expectations. "Ashtead remains one of the strongest earnings growth stories of our coverage universe. Our forecasts suggest that the structural shift to renting alone allows for a 21% pre-tax CAGR [compound annual growth rate] on a three-year view, a fivefold rise in [free cash flow] [April 2014 to April 2017 estimates) and leaves [Ahstead] virtually without net debt by [April 2018]," Credit Suisse said."Improving US end markets and continued high EBITDA [earnings before interest, tax, depreciation and amortisation] drop-through rates would raise our PBT [profit before tax] CAGR [compound annual growth rate] further to over 40%."Despite strong performance since August 2011, the analyst said it continued to view the stock as undervalued and issued an 'outperform' rating. RD