Ashtead: FTSE 100 giant’s potential New York switch raises more questions for London
Analysts have warned that FTSE 100 giant Ashtead’s potential switch to New York’s stock market could strip London of one of its best-performing names, once again raising questions over its status as a trading venue for US-focused firms.
The firm, which rents heavy machinery to the construction industry, is understood to have instructed City advisers to examine the possible benefits of moving its listing to the US.
Ashtead is the 25th-biggest stock on the blue-chip index with a market capitalisation of £24.7bn.
It is just one of eighteen FTSE 100 firms that has grown its dividend every year for the last decade, while it ranks in fourth place for capital returns over the same period, said AJ Bell investment director Russ Mould. Its shares are up more than 500 per cent over the last 10 years.
The London Stock Exchange (LSE) has been battered by a slew of big firms ditching their listings in the capital for better returns overseas.
In recent years, names that have switched to New York include gambling giant Flutter, building materials supplier CRH and plumbing group Ferguson – all with large North American businesses.
New York often attracts firms through lofty valuations and a deeper pool of capital. However, Mould noted that Ashtead actually trades at a higher valuation than its closest US-listed peer, United Rentals.
“This is also encouraging for those investors who will stick with Ashtead should it make the switch,” he said. “Management presumably feels the change is appropriate for good, sound business reasons, not just because they feel the share price is too low.”
The news comes after chief executive Brendan Horgan publicly backed Ashtead’s London listing on multiple occasions last year.
However, Ashtead already earns the bulk of its revenue in North America and expects to grow faster in that region than in the UK.
Lucinda Riches, a non-executive director at Ashtead, said last summer that it was “essentially a US business operationally”, with more than 90 per cent of its revenue and over 95 per cent of operating profits generated in North America. “These proportions are likely only to increase for the foreseeable future,” she added.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Despite recent weakness in demand for the industrial equipment it rents out, North America remains the growth engine for the business, with the group taking around 30 per cent market share of mega projects in the US in infrastructure and chip making.”
Some have speculated that Ashtead could be tempted to move its listing to justify bringing executive pay closer to its US peers after experiencing a shareholder revolt over the issue two years ago.
The firm said last year the pay gap with US rivals was “significant” and that the remuneration committee would “address this as a matter of urgency”.
Asked on the reasons for considering a switch, a company spokesperson told City PM: “Ashtead reviews its capital structure regularly, including its domicile, recognising the fact that 90 per cent of its business is in the US.”
More to come?
There are worries that more UK-listed firms that do the bulk of their business overseas will be tempted to switch their listings.
Dan Coatsworth, another analyst at AJ Bell, put forward credit checker Experian and miner Antofagasta as two potential candidates.
Antofagasta is headquartered in London and has been on the LSE since 1982, but all of its operations are based in Chile.
“While the UK has a reputation for investors ‘understanding’ the mining sector and the companies within it, the same could be said for plenty of other locations, including the US and Canada,” Coatsworth said. “Antofagasta isn’t acquisitive, it is hard to remember the last time it raised money from shareholders, and the management team is not beating the drum to raise the company’s profile.”
Dublin-based Experian generates around two-thirds of its sales in North America, compared to 12 per cent in the UK and Ireland, while four of its five biggest shareholders are US companies.
“However, there is only a small difference in the widely-used price-to-earnings valuation metric between Experian and US-listed rival Equifax,” Coatsworth said. “So any argument to switch listing would need to be based on shareholder convenience, acquisition opportunities and potentially remuneration, rather than valuation.”
Spokespeople for Experian and Antofagasta said they did not comment on speculation.
City grandees have argued that moving to the US is not a surefire route to success. Data from the LSE shows that of the 20 British firms that have raised more than $100m in the US over the last decade, eight have delisted, and only three are trading above their IPO price.