Taking plant hire to a higher plane

Ashtead is having the same impact on plant hire as Airtours has had on travel
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The Independent Online
Conditions in the UK plant hire industry are hardly brilliant. Hire rates fell 10 per cent in 1995 and, after a brief pick-up in 1996, have drifted back again, keeping profitability under intense pressure, particularly at many of the smaller independents.

But the news for investors is not all bad. There are companies which are actually thriving in this challenging climate. The sector's star is Ashtead, at 242.5p, which has enjoyed another strong start to trading this current financial year. Ashtead is a one-stop shop for all contractors' equipment needs.

Ashtead is a phenomenal company by any standards, and is having the same impact on the plant hire business as Airtours has had on the travel industry. Under the leadership of Peter Lewis and George Burnett, who organised the original buyout of the group in the early 1980s, it has come from nowhere to over 160 depots with around 13 per cent of the unmanned plant hire business in the UK and one per cent of the huge US market. The purchase for IRpounds 3.9m of a five-depot business in Ireland, added to three branches acquired in January, has also already made the group the largest player in the booming Irish market.

Earlier this year, Ashtead raised pounds 67m in a 1 for 2 rights issue. Around pounds 55m went towards the purchase of two companies - Leada Acrow with 19 locations in the UK and Ireland for pounds 16.5m and McLean Rentals, which doubled the size of the US operations. All the US operations, 24 depots trading as Sunbelt, are based in seven states in the south-eastern USA stretching from Maryland to Florida. Lewis expects to double the size of the US business over the next two or three years within the seven states.

Ultimately Lewis sees the opportunity for Ashtead to become the dominant force in non-operated plant hire in the northern hemisphere. Meanwhile, back in the UK, he believes he can still double the size of the group.

Even in the short term shareholders have plenty of growth in prospect. Stockbrokers have been looking for profits to double in the next two years, helped by the acquisitions and refinancing of the group. That implies pre-tax profits reaching pounds 36m-plus for the year to April 1998 and a price- earnings ratio of under 13 after an expected pounds 27m-pounds 28m for this year. Helped by the strength of trading those forecasts may be topped, making the shares look excellent value.

Lavendon is a much smaller business, specialising in the relatively new field of powered access. Trading in the shares began last Thursday at 147.5p against a 140p flotation price, and it is capitalised at around pounds 30m, a tenth of Ashtead's worth. As such it must rate as significantly more speculative although it has the look and feel of a solid business.

Founded by 51-year-old chairman and chief executive, David Price, with venture capital support, the group has already grown to a 10 per cent share of a market, worth an estimated pounds 105m in 1995 and growing fast. Powered access is used in industries such as construction, broadcasting and telecommunications where it is replacing scaffolding and towers.

The scope for growth looks considerable. In the UK powered access has about 10 per cent of a total access market worth over pounds 1bn. In the more developed US, powered access takes 30 per cent of the market with the proportion climbing towards an expected 50 per cent. The flotation mainly raised new money, pounds 11.3m, for the group to fund continuing expansion. Price expects to add six depots over the coming year to take the total to 20 on the way to an eventual 30-35, giving full nationwide coverage.

At 147.5p the p/e on forecast 1996 profits of pounds 2.55m is 11.4 or 13.9 times depending on an actual or notional tax charge. Sales have trebled and profits risen far more since 1993. In 1997 earnings per share growth will be restrained by the massively increased issued share capital but should still show a significant gain. The shares look attractive.