Bottom Line: Pause for breath

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THE 12p drop in Ashtead's share price to 439p yesterday looked a churlish reaction to doubled profits of pounds 3.26m and an 18 per cent rise to 1.3p in the interim dividend from the UK's third-largest plant hire business.

Following a 17 per cent jump in the shares over the past month, a 60 per cent rise since last November's rights issue and a tripling in the market value of the company in a year, some consolidation was perhaps inevitable.

With 80 per cent of its costs fixed, Ashtead's operational gearing is considerable. But it would be wrong to attribute all its success to an improved market.

Having invested strongly through the recession, Ashtead enjoys a 7.5 per cent market share compared with 4 per cent four years ago. It has 12,000 customers against 9,000 and employs 750 staff, almost 200 more than in 1990.

While most of the industry has cut back during the recession, Ashtead has continued to invest. That means it has a newer, larger fleet in place for the upturn which should allow it to maintain recent price rises of 2 or 3 per cent.

Forecast profits of pounds 5.6m followed by pounds 8m in 1995 put the shares on a prospective p/e of 28 falling to 22. That is probably deserved, given Ashtead's impeccable record and the growth prospects, but the shares have run their course for the time being.