Ashtead's key strength is that it continued to invest during the downturn, allowing it to take advantage of any upturn in market conditions. When the recession hit it was the smaller companies that suffered most and many went to the wall, squeezed by the struggling construction sector on one hand and the banks on the other.
Backed by a rights issue in 1993, Ashtead has bucked the trend. It has spent pounds 80m on investment in the past two years and last year spent a further pounds 12.5m on six acquisitions. It has about 9 per cent of the non-operated plant sector, making it joint market leader with Hewden Stuart. It has also benefited from increased business as larger groups contract out their plant equipment requirements. It has been reducing its reliance on the construction sector from 80 per cent at the start of the recession to about 40 per cent now. Ashtead hires out everything from ladder mounted units for repairing street lighting to mini-excavators used by cable companies to dig trenches .
Management decision-making is pushed down to the operating branches which are rewarded by monthly profit-related pay and annual competitions. Trophies such as the Coming Up Cup (for most improved unit) and even the Administration Cup for best paperwork may sound corny but the results speak for their effectiveness.
Profits for the year to April rose 94 per cent to pounds 1.7m on sales up 54 per cent to pounds 67m. In spite of heavy investment and acquisitions, gearing is less than 20 per cent. Ashtead's strategy calls for more of the same. Ten more units will be added in the UK and five in the US, where the Sunbelt division contributed doubled profits of pounds 3.3m last year.
Smith New Court forecasts profits of pounds 17m for the current year which puts the shares on a forward rating of 11.4. That is not asking too much of a high-quality company, but with the construction industry poised worryingly on the edge of another recession and prices under pressure, it is high enough.