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.

Start your day with The Independent, sign up for daily news emails
News
FIFA President Sepp Blatter reacts during a news conference in Zurich June 1, 2011
news
News
people
Life and Style
food + drink
News
peopleKatie Hopkins criticises River Island's 'seize the day' bags for trying to normalise epilepsy
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Nicole Kidman plays Grace Kelly in the film, which was criticised by Monaco’s royal family
film'I survived it, but I’ll never be the same,' says Arash Amel
Life and Style
Retailers should make good any consumer goods problems that occur within two years
tech(and what to do if you receive it)
Life and Style
healthIf one was missed, vomiting blood was seen as a viable alternative
Life and Style
tech
News
i100
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

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Guru Careers: Graduate Editor / Editorial Assistant

£16 - 20k: Guru Careers: A Graduate Editor / Editorial Assistant is needed to ...

Day In a Page

Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor
The ZX Spectrum has been crowd-funded back into play - with some 21st-century tweaks

The ZX Spectrum is back

The ZX Spectrum was the original - and for some players, still the best. David Crookes meets the fans who've kept the games' flames lit
Grace of Monaco film panned: even the screenwriter pours scorn on biopic starring Nicole Kidman

Even the screenwriter pours scorn on Grace of Monaco biopic

The critics had a field day after last year's premiere, but the savaging goes on
Menstrual Hygiene Day: The strange ideas people used to believe about periods

Menstrual Hygiene Day: The strange ideas people once had about periods

If one was missed, vomiting blood was seen as a viable alternative
The best work perks: From free travel cards to making dreams come true (really)

The quirks of work perks

From free travel cards to making dreams come true (really)
Is bridge the latest twee pastime to get hip?

Is bridge becoming hip?

The number of young players has trebled in the past year. Gillian Orr discovers if this old game has new tricks
Long author-lists on research papers are threatening the academic work system

The rise of 'hyperauthorship'

Now that academic papers are written by thousands (yes, thousands) of contributors, it's getting hard to tell workers from shirkers
The rise of Lego Clubs: How toys are helping children struggling with social interaction to build better relationships

The rise of Lego Clubs

How toys are helping children struggling with social interaction to build better relationships
5 best running glasses

On your marks: 5 best running glasses

Whether you’re pounding pavements, parks or hill passes, keep your eyes protected in all weathers
Raif Badawi: Wife pleads for fresh EU help as Saudi blogger's health worsens

Please save my husband

As the health of blogger Raif Badawi worsens in prison, his wife urges EU governments to put pressure on the Saudi Arabian royal family to allow her husband to join his family in Canada
Birthplace of Arab Spring in turmoil as angry Tunisians stage massive sit-in over lack of development

They shall not be moved: jobless protesters bring Tunisia to a halt

A former North African boom town is wasting away while its unemployed citizens stick steadfastly to their sit-in
David Hasselhoff's new show 'Hoff the Record': What's it like working with a superstar?

Hanging with the Hoff

Working with David Hasselhoff on his new TV series was an education for Ella Smith