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FTSE slips again but Ashtead climbs after positive update

Discussion in 'Market News' started by Lily, Dec 9, 2015.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Investors remain concerned about commodity rout, but hire group leads risers

    As leading shares slip back once more on concerns about the continuing commodity rout, one exception is Ashtead.

    The equipment rental hire group has recently been hit by concerns about its exposure to the oil and gas sector, where companies have been cutting back investment as the crude price slides.

    The shares have suffered from fears over oil and gas exposure and recent peer comments. We feel that this has been overplayed and today’s statement should reassure. Ashtead remains a quality ‘growth cyclical’ and, with its improving returns profile (2016 estimated return on capital employed of 25%), we remain positive.

    Another positive update from the group, with the 2016 results expected to be ahead of previous expectations. Encouragingly, capex guidance has been increased to £1.1bn (from £1.0bn), indicating confidence in future growth. We continue to believe Ashtead remains very well placed to benefit from the ongoing recovery in in its core US construction markets, alongside secular growth. Much has been made of Oil & Gas exposure and peer group trading; today’s results should help dilute some of these concerns.

    We expect a robust set of figures next week with the UK printing a positive like for like performance in the second quarter despite the very tough comps, which would have been unthinkable of a couple of months ago.

    Dixons Carphone continues to gain market share aggressively both in mobile and electricals in the UK in a market that printed another record Black Friday growth, according to Barclaycard data (up 9.9%). We expect Dixons Carphone to be a major beneficiary while maintaining good margin control as many of the deals should have been supported and agreed with major suppliers, testament to the good relationships the company has. While first half results will cover the six months to October we would be surprised if we don’t hear comments, even qualitative ones, on Black Friday week trading. We are less optimistic about the Nordics and Southern Europe in the second quarter but we expect significant sales growth acceleration in the second half.

    We think Pearson’s problems are structural, with cyclical pressures exacerbating them. The challenges are most acute in US College (approximately 35% profits) and where a reduction in margin to the level of the school business would negatively impact profits by 15%. Over time, we think the education market is becoming more competitive, as the old print-based oligopolies are challenged by free content and new entrants.

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