Midas share tips: Ashtead and PHC

By JOANNE HART
Updated:

 

Ashtead is a relatively simple company. It rents equipment to the construction industry, ranging from wrenches and cranes to drills and concrete mixers.

The group operates in the UK and North America and last August massively increased its US presence with the $1bn (£500m) acquisition of competitor NationsRent. The deal slightly spooked investors because it was big and involved the issue of fresh equity and debt.

The share price collapsed, more than halving in value to 109p, and even today it is trading at just 155¼p.

Not only are brokers concerned that NationsRent is a big business for Ashtead to swallow, they are also worried about the impact on the group of slower housing markets in the US and in Britain.

Both these fears should prove to be misplaced. First, Ashtead is mainly focused on non-residential construction. Less than ten% of revenues come from housing and most of the group's business comes from commercial building companies and government projects.

Conditions in both these markets are benign in Britain and in the US. Companies are spending lots of cash on building work and governments are putting billions into infrastructure. Not only that but the equipment rental market is growing fast in America.

In 2001, only 25% of US constructionequipment was rented. That has already increased to 40% and is expected to rise to 50% by 2010.

Meanwhile, the NationsRent deal is proceeding according to plan. The company has been integrated into Ashtead and the benefits of the transaction should really start to show this year.

Ashtead is now the second-biggest equipment rental company in America. The number one player, RSC, is owned by a private equity firm and the largest operator in the UK, HSS, is owned by the private equity group 3i, so this is clearly a sector that attracts interest from the venture capital community.

New Ashtead chief executive Geoff Drabble was appointed last October and took up his position on January 1, following the retirement of George Burnett. Drabble is driven, down-toearth and experienced and should steer the company forward well.

There is a new chairman, too, Christopher Cole, who took up his position following the death last year of former chairman Cob Stenham.

•• Midas verdict: Ashtead has been through some significant changes over the past 12 months, both operationally and managerially. But this company knows what it is doing and where it is going and appears to be undervalued against its peers. Buy and hold.

PHC sells hope to farmers

Most farmers try to protect their crops by spraying them with products that kill insects and pathogens. But Plant Health Care is different. It works at creating products that help plants and crops to grow better.

Chief executive John Brady says: 'Most of the big companies sell fear. We sell hope.'

Fortunately for farmers and investors, that hope is already beginning to translate into reality. PHC has patented Myconate, which makes plant roots grow up to ten times bigger than they would do otherwise.

The bigger the roots, the more nutrients a plant can absorb and the larger it grows. Trials on corn and soya beans, for example, have shown that over three years yields rose by nine% and 13% respectively.

Myconate also makes plants less susceptible to drought so it can help crops to grow in arid environments. And to cap it all, Myconate is a natural, environmentally friendly product.

But no product is worth much without wide distribution, so PHC has signed a global agreement with Bayer, the multinational chemical and healthcare company.

PHC floated in 2004 and should start to make profits next year. It is also in talks with other big chemical firms and has several products in development.

There are more than 675m acres of cultivated cereal crops in the industrialised world and PHC believes its products could benefit every acre.

•• Midas verdict: PHC shares are trading at 269p and have enjoyed a good run lately, but this is a fast-growing business in a politically correct field. Investors with a bit of an appetite for risk could find this stock rewarding over the next few years.

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