Broker snap: Rates to recover at Ashtead

15th Feb 2011 13:00

UBS lays out the bull case for equipment hire firm Ashtead Group and says that the stage is well set for a strong rental rate recovery, with fleet utilisation back towards optimum levels. The broker says that a "bull case scenario" would drive 100% upgrades to 2013 consensus, which would require rental rates to increase by 8% in 2012 and 2013."We believe the seasonality in rates in December/January was less marked than usual, suggesting consensus for 2011 could also rise materially, which would merely be a taster of the larger ones to come as 2011 progresses," says analyst Alex Hugh.The rental sector reported double digit revenue growth in the fourth quarter against a decline in the non-residential market, and with the industry forecasting a 50% penetration in 2014, it implies a 25% growth in the rental market from 2009 levels."Even if construction does not reach previous peaks, the rental industry is well set to exceed previous peaks," according to Hugh.. "We think the rate rise story has another 18-24 months to run, which is the key driver of future share price performance." The target price is raised from 190p to 265p, and the 'buy' recommendation is retained.