RBC Cuts Ashtead to Underperform on Cost Pressures and Market Overcapacity

RBC Capital has downgraded Ashtead Group (LON: AHT) to Underperform from Sector Perform, maintaining a price target of 4,600 pence in a note to clients, citing mounting industry headwinds and concerns over the U.S. construction market.

Analyst Karl Green said the decision reflects “a range of micro, technical and macro concerns,” including cost pressures, chronic overcapacity in the equipment rental market and potential competitive threats. 

RBC also flagged the prospect of increased rivalry from EquipmentShare, following a Bloomberg report suggesting the company may be preparing for an initial public offering.

The bank warned that these dynamics could weigh on Ashtead’s earnings outlook despite its scale advantages. 

The bank added that pressures from index-related trading imbalances and a softer U.S. housing backdrop could further challenge performance.

Ashtead is seen as particularly exposed to a slowdown in residential construction in the US. RBC noted that weakness in the housing sector may also spill over into non-residential activity, reducing demand for equipment hire.

Despite reiterating its 4,600p price target, the bank said its estimates remain below consensus, reflecting the potential for earnings downgrades as market conditions evolve.