Lean times build plant hire builds on bad

BUILDING industry gloom is not universal. Strange to relate, some companies are doing well and even benefiting from the hard times. Peter Lewis, chairman of the Surrey plant hire specialist Ashtead Group, says his company would not be as strong as it is today if the "mother of recessions" had not hit the construction industry, weakening the competition.

The Bolton-based Allen has also capitalised on rivals' distress to make acquisitions, building its tool hire division into a leading player and buying construction contracts from companies in receivership.

Both these companies are achieving dramatic profits growth and can expect the good times to continue as the construction industry cycle turns up later in the decade.

Ashtead is a phenomenal performer. In May 1984, when Mr Lewis and George Burnett gained control through a management buy-in, the group had pre- tax profits of £75,000, employed 60 people, and operated from five locations. Eleven years later, it operates from 107 depots in three continents with more than 1,200 employees, and profits are expected to top £17m in the financial year which began this month.

Mr Lewis ascribes much of this success to the way the group reacted to recession. Hire and utilisation rates plummeted in the early 1990s, which meant sharply falling profitability, even for Ashtead. Operating profits fell from 30 to 9 per cent of sales at the worst point. But not only did the group continue to use its depreciation-boosted cash flows to invest in new equipment, it took the seemingly outrageous risk of doubling its sales force. The gamble paid off in spades, as a beleaguered construction industry turned increasingly to hiring to conserve precious cash.

When, in late 1993, the management decided that the economy was finally emerging from recession, the company moved into overdrive with a chunky rights issue to create a war chest and a string of acquisitions to build the network. The benefits are being reaped with profits doubling or more in three successive half-year accounting periods. Equally impressive is the tidal wave of cash pouring into the group. A stock of more than £100m of plant for hire means the group has a hefty depreciation charge, helping generate cash flow expected to total between £35m and £40m in the current year.

This puts the group in a marvellous position to capitalise on the continuing consolidation of a fragmented industry. Many smaller operations have been battered by recession and, with finance hard to come by, are under pressure to sell. Ashtead should be able at least to double its market share, and improve profitability significantly, pointing to years of strong growth to come. On a prospective price-earnings ratio under 15 for the year just ended, falling to around 12 for 1995-96, the shares look significantly underpriced at 451p.

Allen is even cheaper, but not as excitingly focused as Ashtead on the buoyant plant hire market. Based in the North-east, with a canny and long- established management team led by the executive chairman, Don Greenhalgh, the £55m group has interests ranging from plant hire to construction, house-building, civil engineering, and property development.

After pre-tax profits fell from £5.25m to £1.51m between 1991 and 1993, results due on 26 June for the year to March should see the group back to profits approaching a record £6m. That will give earnings per share of 13p and a p/e of 13 at 170p. This should fall towards 10 if profits beat £7m for the current year.

The driving force behind the growth is an inspired expansion of the tool hire business, which Mr Greenhalgh says is enjoying excellent trading. He says there are slight signs of an improving trend in house-building, construction and commercial property development. If these divisions improve while tool hire continues strongly, then the middle 1990s could be a vintage period for the group. The shares, with the additional appeal of an above-average yield around 4.5 per cent, look attractive.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Adviser - OTE £24,500

£22500 - £24500 per annum: Recruitment Genius: Inbound and outbound calls with...

Recruitment Genius: Business Development Executive / Sales - OTE £40,000

£18000 - £40000 per annum: Recruitment Genius: This fast growing Insurance Bro...

Guru Careers: Research Associate / Asset Management Research Analyst

£40 - 45k (DOE) + Benefits: Guru Careers: A Research Associate / Research Anal...

The Green Recruitment Company: Graduate Energy Analyst

£20000 Per Annum: The Green Recruitment Company: Summary: The Green Recruitm...

Day In a Page

Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkish President Erdogan could benefit politically from the targeting of the PKK, says Patrick Cockburn
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn or a return to a Labour government

Our choice is years of Tory rule under Corbyn or a return to a Labour government

Yvette Cooper urged Labour members to 'get serious' about the next general election rather than become 'a protest movement'
Singapore's domestic workers routinely exploited and often abused in the service of rich nationals

Singapore's hidden secret of domestic worker abuse

David Cameron was shown the country's shiniest veneer on his tour. What he didn't see was the army of foreign women who are routinely exploited and often abused in the service of rich nationals
Showdown by Shirley Jackson: A previously unpublished short story from the queen of American Gothic

Showdown, by Shirley Jackson

A previously unpublished short story from the queen of American Gothic
10 best DSLRs

Be sharp! 10 best DSLRs

Up your photography game with a versatile, powerful machine
Solved after 200 years: the mysterious deaths of 3,000 soldiers from Napoleon's army

Solved after 200 years

The mysterious deaths of 3,000 soldiers from Napoleon's army
Every regional power has betrayed the Kurds so Turkish bombing is no surprise

Robert Fisk on the Turkey conflict

Every regional power has betrayed the Kurds so Turkish bombing is no surprise
Investigation into wreck of unidentified submarine found off the coast of Sweden

Sunken sub

Investigation underway into wreck of an unidentified submarine found off the coast of Sweden
Instagram and Facebook have 'totally changed' the way people buy clothes

Age of the selfie

Instagram and Facebook have 'totally changed' the way people buy clothes
Not so square: How BBC's Bloomsbury saga is sexing up the period drama

Not so square

How Virginia Woolf saga is sexing up the BBC period drama
Rio Olympics 2016: The seven teenagers still carrying a torch for our Games hopes

Still carrying the torch

The seven teenagers given our Olympic hopes
The West likes to think that 'civilisation' will defeat Isis, but history suggests otherwise

The West likes to think that 'civilisation' will defeat Isis...

...but history suggests otherwise
The bald truth: How one author's thinning hair made him a Wayne Rooney sympathiser

The bald truth

How thinning hair made me a Wayne Rooney sympathiser
Froome wins second Tour de France after triumphant ride into Paris with Team Sky

Tour de France 2015

Froome rides into Paris to win historic second Tour
Fifteen years ago, Concorde crashed, and a dream died. Today, the desire to travel faster than the speed of sound is growing once again

A new beginning for supersonic flight?

Concorde's successors are in the works 15 years on from the Paris crash