Rewarding staff pays off for Ashtead

The Investment Column

After a collapse in profits at Vibroplant last week, and in the wake of more than usually gloomy recent statements from Hewden Stuart, no one could really have expected profits from rival plant-hirer Ashtead to have been so buoyant in the year to April, or for chairman Peter Lewis to be so optimistic about prospects.

Profit before tax and exceptional items, up 35 per cent to pounds 18.3m (pounds 13.6m) suggested Ashtead was operating in a completely different market from its two big peers. Earnings per share were an impressive 27 per cent better at 14.3p, at which level they have quadrupled in three years, and the dividend was hiked 24 per cent to 3.07p. It has doubled over the same period.

In some ways it is true that Ashtead is operating in different markets. Unlike its rivals, the company has a sizeable US operation and Mr Lewis expects more than half of profits to come from America. The attraction of the US operation is that rental rates in that fragmented market can be as much as twice as high as in the UK, where recession and competition have knocked yields for six.

Ashtead also has a profitable survey and inspection hire business, based in Singapore, which supplies the offshore oil and gas markets. That and the US mean that Ashtead generates only about 30 per cent of its revenue directly from the UK construction industry compared with pretty much 100 per cent at the beginning of the 1990s.

The real key to Ashtead's success, however, is not the markets it operates in, which are no better or worse than its peers. It is the way it conducts its business, and especially the profit-related pay structures it has built into staff contracts which ensure that every depot is a profit centre and each employee is to a fairly large extent an owner of the business.

Importantly, profit-related bonuses are paid the month after the period to which they relate, which means that staff get a very real and rapid reward for extra effort. That creates a virtuous circle of positive thinking which has been reflected in the first two months of the current year with a 21 per cent rise in like-for-like sales growth despite no overall improvement in the market.

After a one-for-two rights issue in the spring to fund two big acquisitions, there will inevitably be a period of earnings consolidation and certainly growth would appear to be slowing quite markedly this year to perhaps less than 10 per cent, a considerable decline compared with recent periods.

That is likely to put the brakes on the shares, which have grown relentlessly since 1992 to yesterday's 174p, down 1p on the day. On a prospective p/e ratio of about 12, with two big acquisitions to bed in, and with pretty unfavourable sentiment in the sector, that is probably high enough for the time being. A class act, but fully priced.

PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

Iran is shifting from pariah to possible future policeman of the Gulf

Robert Fisk on our crisis with Iran
The young are the new poor: A third of young people pushed into poverty

The young are the new poor

Sharp increase in the number of under-25s living in poverty
Greens on the march: ‘We could be on the edge of something very big’

Greens on the march

‘We could be on the edge of something very big’
Revealed: the case against Bill Cosby - through the stories of his accusers

Revealed: the case against Bill Cosby

Through the stories of his accusers
Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

The Meaning of Mongol

Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible