Ashtead Group rents construction and industrial equipment across a wide variety of applications. Ashtead is North America’s second largest equipment rental company and operates in US, Canada and UK under the brand name Sunbelt Rentals.
Nice write-up. What are your thoughts on clustering & how that has improved economics & provided a platform to distributed more specialty equipment in a geographic area with a small amount of incremental investment & thus large incremental margins? Also, the strategy of green fielding locations that are clustered to gain market share & using M&A to enter new markets. Equipment rental is a local market share business thus Ashtead can have higher RoA than larger competitors like URI if its local market shares are greater than URIs. IMO your cap-ex estimates include growth cap-ex which has generated the 20%+ growth & does not include the affects of disposals. If you make those adjustments I get a terminal cap-ex of 19% of sales for replacement cap-ex only (as would be implied in a terminal value). The historical 5-yr FCF margins are at 10% including growth cap-ex and 29% before acquisitions (see latest investor presentation page 28). So IMO your terminal FCF margins (AT) should be somewhere between 10% and 29%. Using a current EBITDA multiple in terminal assumes that the terminal will have same capital intensity as today when the company is in high growth mode. This will not be the case for Ashtead so using a terminal multiple of FCF or adjusted NI may be more appropriate.
Nice write-up. What are your thoughts on clustering & how that has improved economics & provided a platform to distributed more specialty equipment in a geographic area with a small amount of incremental investment & thus large incremental margins? Also, the strategy of green fielding locations that are clustered to gain market share & using M&A to enter new markets. Equipment rental is a local market share business thus Ashtead can have higher RoA than larger competitors like URI if its local market shares are greater than URIs. IMO your cap-ex estimates include growth cap-ex which has generated the 20%+ growth & does not include the affects of disposals. If you make those adjustments I get a terminal cap-ex of 19% of sales for replacement cap-ex only (as would be implied in a terminal value). The historical 5-yr FCF margins are at 10% including growth cap-ex and 29% before acquisitions (see latest investor presentation page 28). So IMO your terminal FCF margins (AT) should be somewhere between 10% and 29%. Using a current EBITDA multiple in terminal assumes that the terminal will have same capital intensity as today when the company is in high growth mode. This will not be the case for Ashtead so using a terminal multiple of FCF or adjusted NI may be more appropriate.