View from City Road: Ashtead offsets the gloom

'IF UK plant hire prices rose by 10 per cent our profits would double,' Peter Lewis, chairman of Ashtead Group, the small, Surrey-based plant hirer, is often heard to remark. Such is the power of high operational gearing.

But in reality any significant price rises are some way off. There is not a green shoot in sight so far as demand from a prone and lifeless UK construction industry is concerned. But Ashtead has offset the gloom by drumming up business from privatised utilities and local authorities.

Construction and civil engineering used to provide 75 per cent of Ashtead's turnover. But now the proportion is less than 50 per cent. Road repair programmes, a recent fruitful area, have given full rein to the group's expertise with portable traffic lights, where it is the country's biggest supplier.

First-half pre-tax profits to 31 October have shown a better-than-expected 7 per cent rise to pounds 1.61m. Earnings rose even faster, by 13 per cent, as a move to in-house tax planning in effect reduced the tax rate from 29.4 to 25 per cent, and the half-time dividend has gone up by 3 per cent to 1.13p.

While competitors struggle to stay afloat Ashtead has stepped up its spending on new equipment from pounds 3.3m to pounds 5.5m, but held gearing at 44 per cent. When rivals exit the market and prices rise Ashtead expects to be well placed. It could well be in the market for useful acquisition opportunities - the pounds 5.8m rights it raised for the purpose in 1991 was never spent.

Ashtead shares, up 6p at 179p, have recovered from a severe summertime sell-off and on full-year profits of pounds 2.4m to pounds 2.5m are on a multiple of 22, which discounts a substantial profits recovery. Buy on weakness.