Fitch increases focus on equipment rental

Ratings agency Fitch Ratings has bolstered its coverage of the equipment rental sector with a recently held webinar dedicated to the sector and a growing number of companies covered in the EMEA region.

The webinar in June highlighted its ratings criteria, its view of prospects for the sector post-pandemic, and explained the reasons behind its recent upgrading of Ashtead Group.

Fitch Ratings now covers Ashtead Group (owner of Sunbelt), Boels Rental, Renta and Modulaire. (Photo: Sunbelt Rentals.)

The company now rates Ashtead, Boels Rental, Renta Group and portable accommodation specialist Modulaire as part of its non-bank financial institutions (NBFI) coverage. NBFI include sectors such as car rental, rolling stock leasing and aircraft leasing.

David Pierce, Director, EMEA NBFI, Fitch Ratings, told IRN; “The number of companies in the sector we are rating has grown. We have rated Ashtead for four years and just before the pandemic we added Boels, and Renta since the start of the year. It’s a growing population for us.”

Fitch views the sector positively, expecting the shift from ownership to rental to continue “amid users’ post-pandemic cash-flow pressures.” It expects eurozone real GDP growth of 3% in 2022, and said equipment rental companies will benefit from construction projects deferred in 2020–2021.

Pierce added; “We’ve seen the rental penetration share growing already, pre-pandemic. It’s not going to be a seismic change now, but with cash-flow strains following the pandemic and ongoing inflationary pressures…that is giving us confidence that the underlying trend will continue.”

Christian Kuendig, Managing Director, EMEA NBFI at Fitch, told IRN that even if penetration rates were to stay flat, the companies that it rated tend to be above average in terms of scale; “There is still opportunities for inorganic growth through bolt-on acquisitions. Also, economies of scale are quite relevant in this sector. The efficiency metrics of someone like Ashtead compare favourably to smaller companies.”

Fitch is expecting capital expenditure levels to be sustained at 2021 levels this year. David Pierce said; “We are not expecting CapEx to be less this year – we will be expecting it to grow. It might grow slightly more quickly, had there not been supply chain constraints. We’re not pushing supply chain constraints as a major hand-brake on growth opportunities. It is there in the background with rental.”

Pierce also commented on energy transition issues faced by rental; “ESG factors are relevant to all of our ratings these days. It does need to be a factor.

“In that light, we note that supply constraints themselves possibly enables the value of old equipment to hold up. Also, that desire of users to have access to new equipment is also a potential encouragement for them to use rental providers. It’s a factor for all parties in the supply chain, not just the rental providers in isolation.”

Fitch recently upgraded Ashtead to ‘BBB’/Stable from ‘BBB-’/Stable. The agency said the upgrade was primarily driven by what it described as the strength of Ashtead’s trading performance over the course of the pandemic, which led Fitch to “reassess the breadth and resilience of its business model”.