‘Structural shift’ to rentals lifts SunBelt Rentals parent

Cash-strapped contractors were hiring rather than buying power and construction tools, Ashtead said on Tuesday, as the world’s second-biggest rental equipment supplier nearly trebled quarterly profits.

The FTSE 250-listed company, which operates in the US and the UK under the Sunbelt rentals and A-Plant brand names, respectively, said it was gaining from a “structural shift” towards rentals, which were stronger than in previous recessions.

With an uncertain economic backdrop, building contractors are reluctant to...

invest in their own equipment, while tight credit conditions are making it difficult for smaller rental companies to renew their fleets of diggers and power tools. Ashtead said this was helping the group gain market share despite the downturn in the construction industry in its two key markets.

Construction in the US, which accounts for 90 per cent of the group’s business, has fallen by a third from its 2005 peak to its lowest levels since the 1980s but Geoff Drabble, chief executive, said he thought the US market was “broadly flattening”.

“Clearly there’s been a major correction in the US construction market, and as a result fewer people are wanting to own their own fleet. This has signalled a shift towards rental from which we are clearly benefiting,” he said. The structural shift would compensate for the decline in construction markets, he added.

The shares rose as much as 21 per cent in early trading after Ashtead reported that underlying profits increased by a forecast-beating 184 per cent to £33.8m ($53.9m) for the three months to July 31. Nearly 80 per cent of revenues and 90 per cent of Ashtead’s business come from its 356 Sunbelt outlets in the US, where sales increased 21 per cent.

The improvement marks a turnround for Sunbelt, which was forced to embark on an aggressive cost-cutting programme during the recession. The group has cut staff by 17 per cent and store numbers by 28 per cent since 2007, slashing operating costs by more than a third.

The US market is highly fragmented with the top four players – United Rentals, RSC, Sunbelt and Hertz Rental Equipment – accounting for just 22 per cent of an equipment hire market worth about $27bn in 2010. But with 40 per cent of equipment rented rather than owned in the US, the company expects big opportunities for growth. Both United Rentals and RSC Holdings have also reported increasing rental demand.

Source: Gill Plimmer, Financial Times