Meet Ashtead Technology
Every listed company effectively has to start as an Initial Public Offering (‘IPO’), but fund managers, us included, tend to be wary of new issues. This is because, often, the businesses being brought to market come to see us when the original owner feels it is the optimal time to sell out. Sometimes the historical information given out is limited and we do not get much time to assess the potential of the business, while often the business will have been starved of investment under a leveraged private equity-backed ownership structure.
We met the management of Ashtead Technology in 2021, ahead of the company’s formal IPO and were immediately impressed by what we saw. This is a business which rents equipment and people for subsea environmental, geo-physical and testing work. The company’s asset base or fleet is a mix of specialist robotics and mechanical equipment. Essentially, the equipment is used in Inspection Maintenance and Repair (‘IMR’) services for core offshore energy infrastructure through its lifecycle, in the process enhancing cost and production out-turns. The company operates in more than 80 countries around the world, providing a nice level of diversification in terms of customers.
Commitment to supporting energy transition
Ashtead Technology’s origin was in the offshore oil and gas industry, but management have been actively developing a renewables business, which is now the fastest growing part of the group. Renewables now represent up to around a third of the group in terms of revenues and a target of over 50% has been set for this over the medium term. Acquisitions may be used to accelerate progress to this goal and it operates in fragmented markets with plenty of potential bolt on targets. The management have executed this strategy well to date and have also made a clear strategic commitment to supporting successful energy transition. On the oil and gas side, the business is focused on IMR and decommissioning more than new field development, though more recently they have seen some new field work restarting. The safety and environmental stability of existing infrastructure is clearly critical and the current focus on energy diversification and security for governments around the world supports the extension of life of existing fields plus an acceleration of investment in offshore wind-farms.
This is a recent small company IPO, so ESG disclosure needs to be developed further, but it does have a published sustainability policy mapped to UN Sustainable Development Goals (‘SDGs’). It is benefiting from a structural shift in its sector from energy operators owning their own assets towards renting from specialists like Ashtead. This is something we have seen in other equipment markets, due to a lack of domain knowledge and capital expenditure focus on larger items within the customer base, with low investment in recent years in the industry leading to ageing fleets and challenges in accessing equipment. Management are maintaining discipline, prioritising sustainable service pricing over short-term volume and the business has not yet returned to peak prices, so there is further to go there. Order sizes have been increasing which has helped to optimise fleet use. While it does not have extended visibility, its customers do have strong backlogs at present. Very pleasingly, the company’s shares have risen significantly since the IPO on the back of a series of upgrades to profit forecasts and we remain positive on the outlook.
