Bottom Line: Ashtead's flourishing plant

ANOTHER sparkling set of figures from Ashtead confirmed its pre-eminence in the fast-recovering plant hire industry and the wisdom of its decision to continue investing throughout the recession.

Pre-tax profits more than doubled from pounds 2.8m to pounds 7m, on a 29 per cent increase in sales, underlining the benefit of increased volumes and prices on a fixed- cost base.

Confidence in still rising sales was reflected in a 21 per cent increase in the dividend to 5.5p.

Operating margins, which jumped from 11 to 17 per cent, are still a long way short of the 30 per cent achieved in 1990, but with the key measure of billings per day on a sharp upward tack, that return could be attainable again.

Unlike its peers, Ashtead took the decision in 1990 to maintain volumes even if that meant its return on sales took a battering. As a result, it now enjoys about 8 per cent of the market, twice its share before the downturn began.

Over the past four years it has invested more than pounds 40m in plant, more than doubling the value of its fleet. Staff numbers have risen from 560 to more than 900 and the number of outlets has increased from 49 to 82.

Thanks in part to a rights issue raising pounds 20m last November, the company is also well-placed to achieve a planned doubling of its outlets with net cash and a willingness to borrow now that returns are so much better than the cost of money.

Another important shift over the past four years has been a reduction in Ashtead's reliance on the construction industry, which before the slump accounted for 80 per cent of turnover. That is now less than half, with more reliable custom from privatised utilities and the Government providing the rest.

A surprised market pushed the shares 21p higher to 383p, putting them on a prospective p/e ratio of 13 on the basis of BZW's forecast of pounds 10.5m profits this year. After six months of underperformance since the sector peaked in February, and with plenty of growth still to go for, they are good value.