Time to buy this FTSE 100 high-flier at a bargain price

The Ashtead Group (LSE: AHT) is one of the FTSE 100 companies that continues to deliver value. This is characterized by an increase in the company’s share price of about 190% in the last five years. In the recently released Q3 results, the construction equipment rental firm predicted full-year results ahead of previous expectations, confirming to me that there is more value left in the stock.

Revenue, profits and earnings are up

Group revenue increased by 25% in nine months. (The company trades under the Sunbelt Rentals brand through a network in the US, Canada and the UK.) During the same period, pre-tax profit rose 33% and adjusted earnings per share rose 30%.

Net debt to EBITDA increased from 1.5x in 2022 to 1.6x in nine months. However, the company is investing $2.6bn in that period in existing locations and greenfield sites, compared to $1.7bn in 2022. Ashtead is investing another $970m in 38 bolt-on acquisitions, up from the $938m it spent in 2022, to add 120 other locations in North America.

This investment is part of the Group’s strategic plan, Sunbelt 3.0. The goal is to add 298 greenfield locations in North America, for a total of 1,234 locations by 2024. Ashtead’s long-term goal is to achieve a 20% market share in North America. It also plans to continue to increase its share of the UK market.

US megaprojects and the legislative push

Ashtead’s chief executive, Brendan Horgan, said that the new US $430bn Inflation Reduction Act and the $52bn CHIPS Act will strengthen the already strong construction market, flush with megaprojects.

Today, 30% of total non-residential construction starts in the US are projects valued at more than $400m compared to just 13% in 2000-2009. In total, there are around 200 projects worth more than $400 million, with an average of $1.2bn. In addition, approximately 300 projects worth more than $400m will start in late 2022 or 2023, averaging $1.9bn.

Target the upside but protect the downside

The project required a rental supplier with scale, experience, expertise, product breadth and financial capacity, Horgan said.

To capitalize on this projected market growth in the US, Ashtead expects capital spending for the full year to be ahead of its previous guidance, at $3.5-3.7bn. In 2023/24, the plan is to spend gross capital of $4.0-4.4bn.

Ashtead believes this should enable teenage rental revenue growth in the US. The company also expects full-year results to exceed previous expectations.

There are risks in Ashtead’s operational space, of course. The main thing is the cyclical nature of the construction market, which usually lags the general economic cycle by 12-24 months.

However, Ashtead performed very well in a strong market, coupled with an increase in megaprojects and new legislation in the US. The company also maintains leverage below its target range.

Consequently, I am looking to buy shares in the near term in price dips.