June 20, 2013 / 10:26 AM / in 5 years

UPDATE 1-Ashtead's soaring growth defies limp construction markets

* Cost cuts help to deliver 87 pct profit leap

* Full-year revenue increases by 20 pct

* Shares up 4.9 pct

By Christine Murray

LONDON, June 20 (Reuters) - Ashtead Group is reaping the rewards of an efficiency drive and a shift by builders towards renting equipment, which helped it to defy a volatile construction market with impressive full-year numbers on Thursday.

The British company, which hires out diggers and tools on short-term contracts, reported profit and revenue up 87 percent and 20 percent respectively, prompting an upgrade to its profit forecast for the coming year.

Ashtead has upped its forecasts at every announcement for the past seven quarters despite construction markets on both sides of the Atlantic only now starting to recover from a spectacular bust that began in 2007.

Chief Executive Geoff Drabble attibuted the success to cuts made early in the recession and investment in customer service thereafter, allowing the company to win market share.

“Without any great fancy initiatives per se, we’ve just become a lot more efficient and, bizarrely, the recession was the making of us,” he said. “Out of necessity we saw what we could do, it changed people’s mindset.”

Ashtead’s performance belies the American Rental Association’s prediction for 6.9 percent industry revenue growth in 2013.

Drabble said the sector’s recovery remains volatile in the United States, which accounts for 95 percent of Ashtead’s operating profit, but added that residential markets had picked up and that he expects more private non-residential activity next year and government spending in the following two years.

In Britain, where Ashtead is more reliant on big companies such as Balfour Beatty for its work, Drabble is less upbeat.

”It’s still pretty tough out there. There’s great work in London and there’s not much work going on anywhere else,“ he said. ”Government expenditure remains depressed and, more importantly, unclear in terms of direction.

“There are, periodically, great sound bites about investing in infrastructure. I’ve yet to see anything come out of those soundbites.”

There are, however, small signs that housebuilding has started to recover, partly because of government schemes such as Help to Buy and Funding for Lending.

British construction output in April showed the smallest annual fall in almost 18 months, raising hopes that the sector might contribute to economic growth in the second quarter.

Despite the apparent gloom, Ashtead isn’t looking to expand in emerging markets, such as those in Latin America or the Middle East, any time soon.

“The problem with the developing markets is that we give people relatively expensive bits of equipment for relatively little money and we presume we’ll get them back,” Drabble said.

“Do we cast a wistful eye periodically at other geographies? Yes, we do, but I don’t think anything is imminent.”

Analysts seem to have faith in his strategy. In a Thomson Reuters poll of 15 analysts, only one rated Ashtead a “hold”, with none giving a “sell” rating.

The company’s shares, which were the fourth-highest FTSE 250 riser in the past 12 months, were up 4.9 percent by 1116 GMT.

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