UPDATE 2-Ashtead booms as builders switch to renting equipment

Tue Dec 11, 2012 6:50am EST

* H1 pretax profit up 66 pct to 141 mln stg

* H1 revenue up 17 pct to 680 mln stg

* Analysts say firm could reach FTSE 100 in 5 years

* Shares flat after touching new high

By Christine Murray

LONDON, Dec 11 (Reuters) - Equipment hire group Ashtead posted record first-half profit as U.S. construction firms, struggling to secure credit to buy expensive diggers and tools, rented them instead.

The British group, which makes 85 percent of its revenue from U.S. division Sunbelt, said on Tuesday it had seen a modest pickup in the U.S. construction market in the last quarter.

However, the need to reduce the country's deficit remains a concern for customers and the firm said that even if the market did recover more strongly, there were signs of lasting switch towards renting equipment rather than buying it.

"We've had three fantastic years of growth at a time when the market has gone backwards," chief executive Geoff Drabble told Reuters, hailing a "structural shift" among customers keen to avoid dealing with storage, breakages and regulations.

Ashtead specialises in renting equipment from large diggers to small tools, and provided industrial water pumps for the huge clean-up effort after Hurricane Sandy in New York,

It posted a first-half pretax profit of 141 million pounds ($227 million), up 66 percent on the same period last year.

"It is genuinely conceivable to imagine this as a FTSE 100 company in the next 3 to 5 years," said Jefferies analyst Justin Jordan, upgrading his profit forecasts for the company for the next three years by 14 percent.

On current valuations, that would require Ashtead to grow its market value to over 3 billion pounds from 1.9 billion.

At 1120 GMT its shares, which have risen over 70 percent this year, were little changed at 389.7 pence, having earlier touched a new high of 413 pence.

The American Rental Association believes the $26 billion rental market will grow by 8 percent each year from 2012-16.

Ashtead has a 6 percent market share, suggesting plenty of room for growth.

"There's no question that the company now has significant momentum, it has the resources to expand organically and through more acquisitions," said Seymour Pierce analyst Kevin Lapwood.

But Drabble said he would not stretch the group's finances.

"Sure as anything one day I will endure a cyclical downturn and at that point in the cycle low leverage makes a significant difference," he said in a telephone interview.

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