Broker snap: Jefferies bullish on Ashtead's US growth prospects

7th Jan 2014 08:53

Jefferies has raised its target price for equipment rental firm Ashtead, citing the company's significant growth potential in the US.The broker lifted its target for the shares from 880p to 900p and kept a 'buy' recommendation.Ashtead, which rents out construction and industrial equipment across the UK and US, recently lifted its full-year capital expenditure (capex) guidance by 25% to £700m as it said that profits would at the upper end of expectations after strong growth Stateside.The company added 29 branches to its US Sunbelt network during the first half with plans for 50 new stores over the financial year ending April 30th."With just 6% share of fragmented $33bn US equipment rental market, we believe by opening 50 additional branches per annum, Sunbelt could its double its market share to 12% in four to six years, self-financed by robust cash flows, whilst maintaining a net debt-to-[operating profit ratio] below 2.0, with progressive shareholder dividends," said Equity Analyst Justin Jordan.He said he sees "upside risk to estimates", given that every 1% of Sunbelt rental revenue growth adds around £10m to current-year profit before tax (PBT) forecasts. The broker's upside scenario estimates 21% Sunbelt rental revenue growth this year, meaning that Ashtead's PBT could increase to £362m, from £215.5m previously, before rising to £484m in the year to April 2015. If the US division manages to double its market share in four to six years, Jordan believes that group earnings per share could triple to 100p, from just 27.7p in the year ended April 2013."In the foothills of macro recovery, with many years of super normal profit growth ahead, we reiterate 'buy' with increased 900p price target," the analyst said.The stock was 0.93% higher at 797.34p by 09:31 on Tuesday.BC