The Investment Column: Ashtead will reward loyalty

THE MOVEMENTS in the shareprice of Ashtead, the plant hire group, in the last seven months are, at first glance, a mystery.

The shares tumbled in December though there was no bad news from the company. After January's interims they went back up, but fell again in May, again despite the lack of an announcement from the company. The shares' natural upward momentum saw them recover once more but they took a tumble yet again yesterday even though Ashtead reported record results in all its three companies. Should investors be deterred from the company because of these erratic movements?

One explanation for the movements is downgrades by Ashtead's housebroker, ABN Amro. Ashtead says ABN cut forecasts yesterday, in May and in December. Still, that raises the question of why ABN reacted negatively to yesterday's results statement. The broker downgraded pre-tax profits forecasts for this year from around pounds 60m to pounds 51m.

The answer perhaps lies in a change in Ashtead's view on the US. Chairman Peter Lewis says Ashtead's investigation into how best to penetrate that market, where it has around a 3 per cent market share in 10 states, has come to conclusions different to those expected. Making a sizeable acquisition there would cost around pounds 0.5bn, because the likely targets carry so much debt on their balance sheets.

Ashtead's goal to add 100 new sites in the next two years to its existing 70 in the US may now be achieved through picking off some off America's 14,000 independent operations. Alternatively, it could develop greenfield sites, which would generate significant start up costs and hit the bottom line, impacting profits this year. Greenfield openings hit US margins last year.

Whilst that would leave the group once again destined to report some one-off costs - this year Ashtead cited start-up costs and wet weather - the goal would be a slice of a potential US rental hire market worth pounds 400bn.

But Ashtead's UK business should continue to deliver solid growth. Within months it will start marketing its loyalty card, introduced in December, at new customers. The card has already helped build Ashtead's reputation as a one-stop shop.

The shares, which fell 15p to close at 164p, are volatile, but still well below their high of 283.5p. They are good value for investors willing to bear a bumpy ride.

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