Are Ashtead Technology Shares (LON: AT) Set To Break Out?

Ashtead Technology Holdings share price (LON: AT) gained an impressive 8.56% on the day, trying to break out above 600p, before closing at 589.50. A breakout above 600 that holds on decent volume could be an indication of an upside move for the stock that has otherwise underperformed markets this year. So why the sudden shift in sentiment?

The subsea equipment rental and solutions provider announced the strategic acquisition of two notable companies in the industry, Seatronics Limited and J2 Subsea Limited, for a sum of £63 million. This significant move is set to bolster Ashtead's current portfolio, adding new dimensions to its survey and robotics capabilities.

The news has been well received by markets that have seen Ashtead Technology shares fall by 11.56% through the year before today's rally.

The financial intricacies of the deal are promising, with Ashtead asserting the acquisition to be mid-to-high single-digit earnings accretive in the very first year. Furthermore, by the end of 2025, Ashtead Technology anticipates this acquisition will help lower its leverage to below 1.5 times, indicating a robust financial strategy tied to the expansion.

Seatronics and J2 Subsea are not new entrants in the offshore energy market space, having operated under Acteon Group for a decade, and play important roles in key regions including Singapore, UAE, UK, and the US. The move not only consolidates Ashtead's position in these markets but also taps into existing operational expertise.

The acquisition is particularly significant from an assets standpoint. More than 7,000 proprietary assets from Seatronics and J2 will be added to Ashtead's already extensive rental fleet. This influx of assets comes at an opportune moment as global markets for subsea oil & gas and renewable energy are growing. In addition to physical assets, Ashtead will also acquire a rich workforce with deep domain knowledge—further cementing its industry stronghold.

In preparation for this growth, Ashtead Technology proactively increased its revolving credit facility by £70 million, which, in conjunction with the existing credit facilities, brings the total facility to a substantial £170 million. This calculated financial planning showcases Ashtead's commitment to a seamless integration process and its focus on maintaining liquidity.

The Board of Ashtead Technology has also planned a significant investment in the newly acquired fleet, earmarking roughly £10 million in the first year of ownership. This investment is targeted to yield a high teens percentage increase in earnings before interest, taxes, and amortization (EBITA) during the initial investment period, underscoring an aggressive growth methodology.

The leadership at Ashtead, along with their counterparts at Acteon Group, have both expressed optimism regarding the strategic fit of this acquisition. Allan Pirie, CEO of Ashtead Technology, and Brice Bouffard, CEO of Acteon, have voiced their confidence in the acquisition, signaling the mutual benefits and potential for growth that this partnership brings forth.