Ashtead’s 26% rental income jump reflects Sunbelt’s rate hike
One industry that benefits from a busy construction industry going through tough economic uncertainty is equipment rentals, as the financial performance of large chains such as Sunbelt Rentals suggests.
Revenue at Sunbelt’s UK-based parent company Ashtead jumped 22% in the three months to July 31 to $2.26 billion. Operating profit rose 26% to $594 million.
Almost all of this growth comes from rental income which increased by 26% during the quarter. The strong start has prompted Ashtead to raise its full year 2022 guidance to 17-20% revenue growth in 2022.
The Ashtead Group operates under the names Sunbelt US, Sunbelt Canada and Sunbelt UK and, although all of its businesses are growing, the American brand is the main driver of volume and growth for the group. Sunbelt US generated 84% of Ashtead’s revenue and 91% of group profit in the quarter.
Sunbelt’s U.S. rental revenue jumped 26% in the quarter to $1.39 billion. Rental revenue growth was driven by both volume and rate improvements in what the company says “continues to be a good rate environment.”
This is an example of a trend seen across the equipment rental industry as a whole, which itself is expected to grow 11.2% in 2022 to nearly $55.9 billion. according to the most recent forecasts of the American Rental Association. Construction equipment rental revenue in particular is looking to grow 12.5% in 2022 to top $41.6 billion. Growth is expected to slow to 7% in 2023, 2% in 2024, 3% in 2025 and 3% in 2026.
“Rental revenues increase when the fleet grows or when rates increase,” explained John McClelland, Ph.D., ARA’s vice president for government affairs and chief economist in a recent report from the ARA. ‘American Rental Association. “Both things are happening today, however, supply chain issues are inhibiting fleet growth while inflation is pushing rates higher.
“In the past, we have seen strong revenue growth which we attribute to fleet growth. We are now seeing revenue growth driven by higher rates,” he said.
And higher rates have a direct impact on contractors looking to complete their projects on time and within budget.
Ashtead in acquisition mode
The extent of Sunbelt’s success in the United States, in particular, reinforces Ashead’s strategy of developing specialized businesses and expanding end markets, primarily through acquisitions. Rental income from the US business grew 20% organically and acquisitions since May 1 last year contributed 6% to rental income growth. The 38% growth in their specialty rental business outpaced general tool rental by 15%, virtually guaranteeing that Sunbelt will continue to acquire businesses.
Rental-only revenue from the Sunbelt UK business rose 5% to £104m. But the end of free mass COVID testing in April 2022 has significantly reduced the revenue associated with the Department of Health’s testing sites. Excluding the impact of works for the Ministry of Health, rental revenue alone increased by 19%. Total revenue decreased by 4% to £182m (2021: £190m), reflecting the volume of ancillary revenue and sales associated with working for the Department of Health, which accounted for 16% quarterly revenue.
Rental revenue in Canada alone increased 18% to C$131 million. Sunbelt’s Canadian operations are experiencing growth similar to that of the United States, with strong improvement in volumes and pricing.
“During the quarter, we invested $699 million in capital in existing sites and greenfield sites and $337 million in 12 add-on acquisitions, adding a total of 33 sites in North America,” said the chief executive. of Ashtead, Brendan Horgan.
Horgan added that the acquisitions do not strain the group’s credit, saying they maintain “a strong and flexible balance sheet with leverage close to the bottom of our target range”.
First quarter acquisitions include:
- Specialized company Movietech Camera Rentals Limited and Movietech Cymru Limited.
- The power rental division of specialist company Filmwerks LLC.
- General tool company in Georgia Mashburn Equipment LLC.
- MacFarlands Limited, a general tool company in Nova Scotia and New Brunswick.
- General tool company in California Amos Metz Rentals & Sales LLC.
- General Tool Company of Pennsylvania George’s Tool Rental Inc.
- Specialist company PKE Lighting Holdings Limited.
- Maine General Tool Company Milford Rent-All Inc.
- Indiana General Tool Company R&N Tool Rental Inc.
- General tool company in Utah, Chump Management LC, as Power Equipment Rental.
- General Tooling Company of Pennsylvania Harmar Contractors Equipment Inc.
- General tool company in California AV Equipment Rentals Inc.
Since the end of the period, Ashtead has spent an additional $183 million on these seven acquisitions:
- Alberta general tool company Compact Rentals Limited.
- General Tool Company of New Jersey Rental Country Inc.
- Californian general tool company RJ Lalonde Inc.
- General Tooling Company in Alaska Alaska Pacific Rental LLC.
- Specialist company Optimum Power Services.
- Specialist company Flagro Industries Limited.
- General Tool Company Xtreme Rentals Ltd.