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AJ Bell Youinvest Breaking the Mould – Ashtead full year results 2020

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Two macroeconomic highlights and a results from a handful of FTSE 100 companies mean that the week ahead should be a highly informative one Top down, the feature overseas will be the latest batch of monthly data from China, which will reveal the latest trends in the country’s industrial production, retail sales and investment in tangible assets

The numbers are due out on Monday 15 June, although the timing can be a bit variable This will be intriguing as China was first into lockdown and therefore first out, so Western economists will be looking to see how well – or otherwise – the economy there is regaining momentum The purchasing managers’ indices (or PMIs) are back above 50, to suggest the economy is growing again, which is encouraging after the 68% year-on-year fall suffered in the first quarter Moreover, all three of these indicators had started to show some improvement in April so it will be fascinating to see what May brought: Just to remind you: • And investment in fixed assets fell 10

3% year-on-year • Retail sales fell 75% • And industrial production actually rose 39% On the home front, unemployment and wage growth will be centre stage on Tuesday 16th June The latest figures will cover the three-month period to the end of April and thus catch the first full month of lockdown Hopefully, Government support in the form of the furlough scheme will have kept a lid on unemployment but we shall see whether enough firms had enough cash at hand to see themselves – and their staff – through until when the furlough cash actually available

In March, the UK unemployment rate actually fell very slightly to 39% although wage growth cooled again, sliding to 28%, its lowest mark since June 2018 Company-wise, the cast list is select but should be no less useful for that Again, however, do note that the Financial Conduct Authority is giving companies extra time to compile their results and accounts, so these dates are potentially subject to change

Scheduled announcements could include: • Retailer N Brown on Monday 15th June • Multi-utility provider Telecom Plus on the 16th • SSE, De Lar Rue and another retailer, Boohoo, on the 17th • National Grid and Safestore on the 18th • And cruise ship operator Carnival and house builder Berkeley for a busy end to the week on Friday 19th June But for me the stock most likely to cause a big fuss in the week ahead is Ashtead The equipment rental giant is to due report its full-year results on Tuesday 16th June It is just over a year since Brendan Horgan took over as chief executive from Geoff Drabble and while he could have probably wished for an easier start, he can at least draw some comfort from how the shares are actually slightly higher than they were a year ago This may look strange when the company rents out capital equipment and so is very dependent on the economic cycle and industries like construction and house building for its bread and butter But Ashtead get around 90% of its sales and profits from the USA, via its Sunbelt subsidiary, with the rest largely coming from the UK-based A-Plant business, and investors are clearly taking the view that the American economy is going to bounce back from the virus and the lockdown very quickly

May’s addition of 25 million jobs will only further that impression and the US Federal Reserve and Government on Capitol Hill have thrown over $7 trillion in support at the economy since March We can also see how the manufacturing purchasing managers’ index has started to show tentative signs of improvement in the US and the UK, which could help going forwards Ashtead did publish a trading statement back in April which flagged the impact of the early stages of the pandemic upon its business – rental revenues at Sunbelt were still up 2% year-on-year in March and April was down only 15%, because the business was providing essential services to hospitals and care facilities, testing sites, food services and cleaning and utilities companies Ashtead also flagged how sales had begun to stabilise from around April 10th

So when it comes to Ashtead’s numbers analysts will be looking at three headline figures • The first is sales On a stated basis, Ashtead had been consistently generating double-digit percentage sales growth, although momentum had begun to slacken a little even before the viral outbreak Analysts are looking for full-year sales of around £5 billion against £45 billion a year ago

Also note that Ashtead will release a number which adjusts for foreign exchange movements • The second is pre-tax profit Again, percentage growth here has been consistently running in the teens, with the exception of the fourth quarter of last year when bad winter weather caused some disruption In the April trading statement management guided to an underlying pre-tax profit figure of around £105 billion, very slightly down from £1

1 billion last year Just as importantly the consensus estimate is for a one-third drop to £707 million for the new financial year, although it is unlikely that Mr Horgan will be keen to offer any firm forecasts given the uncertain backdrop Analysts will home in on the dividend Last year Ashtead distributed 40p a share to shareholders to extend an annual dividend growth streak that dates back to 2005 However, analysts seem to think that the viral outbreak means that run of increases is in jeopardy

The consensus forecast is looking for a payment of 358p a share which implies a cut to the final and the full-year payment Three other items to watch are the ongoing share buyback programme (which stopped in April), spend on bolt-on acquisitions (which was down by a fifth at the nine-month stage) and particularly capital investment If management is feeling bullish, then it will buy more kit to rent out At the nine-month stage capex was flat at £1

3 billion I hope that you and your families are all in good health and good spirits during these difficult times Thank you for listening and I look forward to talking to you again next week

Source: Youtube

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