Ashtead

Our markets

The US continues to be our biggest market and we are seeing significant growth in our still relatively new Canadian market.  We continue to perform well in the UK but this is a much more subdued environment than North America.  The US rental market is five times bigger than the UK and we continue to capitalise on the structural changes in that market, as customers adapt to renting equipment rather than owning it.  Our Canadian business is still smaller than our UK business but is growing rapidly.  We have expanded our presence in Canada significantly and are excited by the opportunities we see there.  We expect the Canadian market to develop similarly to the US, as customers get more used to renting a wider variety of equipment and more familiar with the Availability, Reliability and Ease we deliver.  Our aim is to continue to grow the business wherever we are in the economic cycle.  Strong markets in the US and Canada, and a stable one in the UK, mean we continue to perform very well.

The breadth of our markets
Our markets continue to broaden, in terms of geography, range of equipment rented and the applications for which our equipment is used.  The graphic below shows the growing diversity of end markets that are using our equipment more and more.  In many cases, this is the same equipment just used for a different purpose.  A significant proportion of our fleet was developed originally for the construction industry but is now used in applications varying from film and TV production to putting up Christmas decorations.  We are reaching these broadening markets as a result of our scale, advancement of our market cluster strategy and specialty business evolution - all positioned to give great service to our customers through our corporate mantra, Availability, Reliability and Ease. For any one of these markets, there is also a wide range of equipment used.  For example, on large festival sites such as Lollapalooza in Chicago or Glastonbury in the UK, we may have 400-500 pieces of equipment of all different types and sizes.  Equipment that previously would not have been rented is now part of the rental mix.  This is particularly the case with the ongoing structural change most noticeable in the US and Canada.

Construction continues to be busy but we are seeing lots of growth in general equipment and specialty businesses in areas such as special events and maintenance.  A big change in recent years has been the increase in rentals taking place in ordinary square footage under roof applications every day, throughout our business and we expect this trend to continue.

We are also seeing changes in the length of time that customers hold onto equipment.  Large projects are longer and rental is now core to these rather than being more ‘top up’ in nature, as it used to be.  We are also seeing customers holding on to equipment longer to move to the next job or project.  Demand is high, as are backlogs, and we are seeing customers extend rentals as a result.

MARKETS WE SERVE:

Markets - Market construction iconConstruction

  • Airports
  • Highways and bridges
  • Office buildings
  • Data centres
  • Schools and universities
  • Shopping centres
  • Residential
  • Remodelling

Markets - entertainment iconEntertainment and special events

  • National events
  • Concerts
  • Sporting events
  • Film/TV production
  • Theme parks
  • Festivals
  • Farmers' markets
  • Local 5K runs
  • Cycle races

Markets - facilities maintenance iconFacilities maintenance and municipalities

  • Office complexes
  • Parks and recreation departments
  • Schools and universities
  • Shopping centres
  • Apartment comlpexes
  • Pavement/kerb repairs
  • Golf Course maintenance
  • Government
  • Hospitals

Markets - emergency response iconEmergency response

  • Fire
  • Hurricanes
  • Flooding
  • Tornadoes
  • Winter storms
  • Residential emergencies

 

The US

Economic strength 
Our core US markets remain strong.  Industry forecasts remain good, our end markets are busy and are signalling no change in course on the horizon.  Naturally a range of market indicators can show a range of expectations.  However, no one market indicator or forecast tells the full story, or should be overreacted to, but what we are seeing today is a broad set of data, internal and external, pointing to ongoing strong end markets.

Construction markets continue to be strong and, with growing employment, the benefits of lower energy prices and increased disposable income, people continue to spend more money which is positive for our broader, non-construction markets like event work and residential remodelling.  Oil and gas, which remains only a very small part of our business, but which has struggled in the past, has rebounded from the lows of three to four years ago.  Tax reform has added to positive trends with corporate tax cuts only now beginning to translate into actual projects.  These include more data centres and distribution warehouses nearing starts, and office expansion and renovation, all of which need our services.  We expect economic growth to continue in the US.

Market share in the US
We continue to grow our market share in the US and even though we are the second largest equipment rental company, there remains plenty of room to grow.  Our major large competitors are United Rentals and Herc Rentals with 14% and 3% respectively.  Home Depot, Ahern and H&E have shares of 2% or less.  Most of the remainder of the market is made up of small local independent tool shops.

Much of our market share gain comes from these small independents when we set up new stores or acquire them.  Ours is a capital-intensive industry where size matters.  Scale brings cost benefits and sophistication in areas like IT and other services, and this leads ultimately to further consolidation.  The proportion of the market enjoyed by the larger players continues to increase and we have clearly been a major beneficiary of this trend.  Whilst there will always be a place for strong local players, the market share enjoyed by the larger players is likely to grow by a further 30 to 40% in the medium term.

This market share analysis is based on the traditional definition of the rental market focused on construction.  A significant market for us is property maintenance, repair and operation characterised by square footage under roof.  In the US there is 87bn square feet under roof and we believe this represents a potential rental market of $7-10bn, with minimal rental penetration at the moment.  It is not a new market for Sunbelt but one with increasing opportunity as we demonstrate the benefits of rental through Availability, Reliability and Ease.  One consequence of this is that we believe the size of the rental market is understated and hence our, and everyone else’s, market share is overstated.  This only serves to increase the opportunities for growth.

We are confident that as the market grows, our share will also increase.  We have a good track record of success having doubled our market share since 2010.  We continue to set ambitious targets for continuing to increase our market share, with an initial goal of 15%.  The speed with which we increase our market share is in part a function of how quickly we can get new locations up and running.  However, as noted above, our market share growth also comes from continuing to broaden both our end markets and the range of equipment we have available to rent in each location.

The combination of our business mode, the continuing strong economy and the long-term trend to rental, provides the perfect environment for us to achieve our goals.  In addition, our market share gains accelerate as we make the most of our scale advantages.  In the longer term, we believe that US market share in the order of 20% is an attainable goal.

As we increase our market share and grow our specialty businesses, they become a greater proportion of the mix across the cycle.  The acquisitions we make are often to expand into a new specialty area or to develop an existing one and then we supplement them with greenfield openings.

The trend to rental 
The trend of rental penetration in the US continues to be positive for the industry as our customers have become accustomed to the flexibility of an outsourced model.  Between 2010 and 2019, increased rental penetration effectively grew our end market by 20 to 25%.  We see this trend continuing, which will provide similar levels of market growth over the coming years.  Rental still only makes up around 55% of the US market compared to around 75% in the UK.  However, this is a broad average with penetration levels ranging from single to low double-digit percentages for, say, floor scrubbers to 90%+ for large aerial equipment.  We like specialty products because they are at the low end of this range, which provides greater scope for growth.  We see the potential market penetration for rental equipment to be well over 60% in the US.  The short-term drivers of this evolution are the significant cost inflation in recent years associated with the replacement of equipment, technical changes to equipment requirements that make rental more attractive and health, safety and environmental issues which make rental more economical and just easier.  In addition, our customers are ever more used to renting equipment rather than owning it themselves.

Canada

A fast growing market
Canada is still a relatively new and fast-growing market for us.  The existing rental market is just over a tenth of the size of the US.  But in the same way that the US has experienced structural growth as more and more types of equipment are rented for different applications, we expect similar trends in Canada in the longer term.  Our share of the Canadian rental market is around 4%.  There is plenty of scope to develop this in the same way as in the US and we are growing rapidly.  IHS Markit predicts Canadian rental revenue to grow between 4 and 6% annually through 2021.  We anticipate growing more rapidly as we take market share and broaden our offering.

Our entry to the Canadian market was focused first on the southwest corner of Canada where we acquired a small business in 2014, GWG Rentals, with a strong management team.  Using this as a base, we then opened a series of greenfields and made a number of small bolt-on acquisitions to expand the business.  We now also have a significant presence in Ontario through the acquisitions of CRS in 2017 and Voisin’s in 2018 and are expanding in Edmonton, Calgary and Winnipeg. We are creating a strong platform from which to grow. 

Sunbelt Canada has had pro forma rental only revenue growth of 18% this year and in five years we have gone from six stores to 67. The rental market has, to date, been construction focused, but we continue to develop new markets such as the film industry in Vancouver.  In addition, we have added our power and flooring solutions specialty businesses this year.  Customers who traditionally rented mainly aerial work platforms are now renting smaller equipment as well.  Customers are increasingly seeing the benefits of working with us to fulfil the full range of their rental needs. Prior to our arrival there was no branded equipment in the market. Our cluster approach also means we are able to be closer to our customers than has previously been the case. 

Across the country there are variances in the mix of fleet we have on rent.  In Western Canada we see more customer demand for aerial work platforms (‘AWP’) especially through our work servicing the film and TV industry.  In the resource-rich areas of Canada there is more demand for extraction equipment and this is reflected in the fleet mix available. We see great opportunities for expanding our specialty and AWP businesses, especially in Ontario. As we expand in other provinces we expect to generate more business from Canada’s resources industry.

Our initial goal is to achieve market share of 5% and for Canada to make up between 15-20% of the North American business.

The UK

Economic resilience
The UK market is more challenging and although we expect it to continue to grow, this will be at a more moderate pace for the foreseeable future. A contributory factor has been the continuing uncertainty around Brexit. Structural growth opportunities are more difficult to come by because of an already high level of rental penetration. Nonetheless, A-Plant continues to grow, making bolt-on acquisitions and taking market share. A-Plant also performs better and is more resilient than many of its peers. Given the good overall construction market, we will continue to invest responsibly in the UK market as we seek to increase market share and enhance returns.

Market share
We continue to be the largest equipment rental company in the UK. There are a greater number of major players in the UK market and, as the largest, we only have an 8% market share.  

We believe we continue to be well-positioned in the market with our strong customer service, broad based fleet and strong balance sheet. We continue to broaden our customer base and have focused our investment on specialty sectors within the market. This has proven successful in growing our market share.

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