Ill wind blows some good for Ashtead – FT Alphaville (registration)

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Ill wind blows some good for Ashtead. FT Opening Quote, with commentary by Matthew Vincent, is your early Square Mile briefing. You can sign up for the full newsletter here.

Ashtead is one of many US-focused companies no doubt relieved that Hurricane Irma veered away from Miami at the last moment yesterday. But, unlike the insurers and real estate groups, for which the news meant only avoidance of losses, the FTSE 100 construction equipment group can hope for later gains.

According to a Jefferies analyst quoted in news reports, Ashtead’s Sunbelt equipment hire business could generate $50m in rental revenues from rebuilding work and flood defence spending following the earlier Hurricane Harvey, plus the much needed Hurricane Irma clean-up operation. “Ashtead has 84 equipment branches in Texas and another 58 across Florida, so is well placed to assist in both immediate disaster recovery activity and longer term rebuild work,” Jeffries said.

This morning, Ashtead preferred not to put a figure on it – other than to say the work would “underpin the current market assumptions in our 2021 plan”.

But it did acknowledge that “hurricane season has already generated significant activity which will require a major clean-up effort and then a multi-year rebuild programme.”

Chief executive Geoff Drabble said:

“Currently, our efforts are focussed on supporting our colleagues, neighbours and customers and we stand ready to provide further assistance. It is too early to attempt to quantify the impact of Hurricanes Harvey and Irma accurately on our business. However, it is evident that it will result in an increase in demand for our fleet and we will provide an update at the end of Q2.”

Even with this work only just getting underway, Ashtead was able to report a strong first quarter, with rental revenue across the group increasing 25 per cent and underlying pre-tax profit up 30 per cent to £238m. Jefferies had forecast a 12 per cent rise in quarterly rental revenues and 25 per cent growth in pretax profit to £229.2m. Statutory pre-tax profit came in at £228.9, up 19 per cent. Ashtead is now almost a wholly North American business, with its C$275m (£172m) acquisition of Canadian equipment rental business CRS in August adding to the 92 per cent of operating profit it already generated in the region.

As a result, its first quarter performance was boosted by weaker sterling but it also achieved a 17 per cent increase in rental revenue with currency effects stripped out.

Ashtead said it had continued its strategy of seeking both organic growth and bolt-on acquisitions – committing to £377m of capital expenditure and spending £116m on bolt-on acquisitions in the three months to end July .

And the outlook remains positive, despite some analyst concerns over the US construction industry. Ashtead said: “our end markets remain strong and a wide range of metrics have shown consistent improvement”.

For investors, the question is how much longer this can continue: Ashtead’s share price is up 400 per cent in the last five years.

Back in the UK, sportswear retailer JD Sports has an eye on thankfully less troubling external conditions: those on Britain’s provincial high streets.

Despite dire warnings from analysts at Quo Vadis Capital that “athleisure is over” (please let it be true), following the first drop in like-for-like sales at rival Foot Locker since 2008, JD is once again performing better than expected. It seems the trend for wearing garish lyrca yoga wear to drive your kids to school in a 4×4 persists. And that’s just the Dads.

This morning, its half-year results suggested growth will be back at the top end of forecasts once again.

Over the summer, the athleisure retailer’s share price took a tumble when it said the timing of Muslim festival Eid had a negative impact on its sales, and it failed to upgrade forecasts.

However, JD now expects full-year profits to come in “towards the upper end” or market expectations of £268m to £290m. This forecast came as it reported a 41 per cent year on year increase in revenues in the six months to July 29, to £1.4bn, and like-for-like store sales growth of approximately 3 per cent plus “significant growth” online.

Analysts at Shore Capital had forecast revenue growth of 24 per cent for the six months to 29 July, with like-for-like sales growth at 3.9 per cent.

JD also said that it would keep an eye out for further acquisition opportunities to take advantage of its £222m cash pile, following the completion its £112m deal for outdoor brand Go Outdoors earlier this year.

Peter Cowgill, JD executive chairman, said:

“This is another pleasing result demonstrating the strength of our highly differentiated multichannel proposition and our ability to prosper in an increasingly competitive market for athletic inspired footwear and apparel”.

And, finally, it is looking like plain sailing from here on for Wood Group’s £2.2bn acquisition of oil services rival Amec Foster Wheeler. This morning, the companies said that the Competition and Markets Authority was satisfied with Wood Group’s offer to sell some of Amec’s North Sea operations to alleviate competitive concerns.

Robin Watson, Wood Group’s chief executive, said:

“Since we announced the deal in March, both parties have maintained a relentless focus on keeping on schedule… Today’s earlier than anticipated decision from the CMA allows us to move forward with pace and we are very confident of completing the acquisition of Amec Foster Wheeler in October.”

Wood Group’s deal for Amec will create a major player in UK industrial operations – helping to reduce its dependence on the oil and gas sector. Amec has wide-spanning operations, from working in the defence sector to advising on Heathrow’s third runway campaign.

Beyond the Square Mile

Asia shares climbed following another record closing high for the S&P 500 on Wall St. Sydney’s S&P/ASX 200 index was up 0.7 per cent and Tokyo’s Topix rose 1.1 per cent. Hong Kong’s Hang Seng was flat after walking back earlier gains.

The renminbi slipped to Rmb6.5434 per dollar after China’s central bank weakened the daily fix by the most since January. The People’s Bank of China set the midpoint around which the renminbi can trade 2 per cent in either direction against the dollar at Rmb6.5277 — 0.4 per cent softer from the previous day.

The dollar index, which measures the currency against a basket of peers, was flat in Asia trading.

Oil prices were lower after the impact of Hurricane Irma was downgraded. Brent crude, the international benchmark, retreated 0.2 per cent to $53.74 a barrel after touching its highest since May late last week. West Texas Intermediate, the main US contract, was off 0.1 per cent at $48.02.

With risk appetite growing as the weekend’s dual threats of damage from Hurricane Irma and the potential for a North Korean weapons test receded, gold slipped 0.2 per cent to $1,323 per ounce.

Intraday

In the US, the S&P 500 is expected to open flat later in New York.

Corporate earnings reports out on Tuesday include Ashtead, JD Sports, Goals Soccer Centres and Constancio.

The economic calendar for Tuesday is light (all times London):

08.30: Sweden consumer price index
09.30: UK CPI, producer price index and house price index
13.00: Poland CPI

The markets at 07:47

Asian markets
Nikkei 225 up +230.85 (+1.18%) at 19,777
Topix up +15.19 (+0.94%) at 1,627
Hang Seng down -5.99 (-0.02%) at 27,949

US markets
S&P 500 up +26.68 (+1.08%) at 2,488
DJIA up +259.58 (+1.19%) at 22,057
Nasdaq up +72.07 (+1.13%) at 6,432

European markets
Eurofirst 300 up +15.43 (+1.05%) at 1,491
FTSE100 up +35.99 (+0.49%) at 7,414
CAC 40 up +63.22 (+1.24%) at 5,177
Dax up +171.26 (+1.39%) at 12,475

Currencies
€/$ 1.20 (1.20)
$/¥ 109.30 (109.36)
£/$ 1.32 (1.32)
€/£ 0.9074 (0.9078)

Commodities ($)
Brent Crude (ICE) down -0.04 at 53.80
Light Crude (Nymex) down -0.06 at 48.01
100 Oz Gold (Comex) down -5.80 at 1,325
Copper (Comex) down -0.01 at 3.04

10-year government bond yields (%)
US 2.13%
Germany 0.34%

CDS (closing levels)
Markit iTraxx SovX Western Europe at 19.9bp
Markit iTraxx Europe -1.45bps at 51.98bp
Markit iTraxx Xover -5.9bps at 228.13bp
Markit CDX IG -2.77bps at 57.47bp

Sources: FT, Bloomberg, Markit


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