Like Warren Buffett, I like to purchase high quality shares once they’re on sale. So the ten% decline in Ashtead Group‘s (LSE:AHT) share price immediately (10 December) has actually grabbed my consideration.

At £56.40 per share, it’s the FTSE 100‘s largest faller in Tuesday enterprise.

I already maintain Ashtead shares in my Self-Invested Private Pension (SIPP). And following immediately’s drop, I’m contemplating including to my stake.

Rates of interest chunk

Ashtead’s operations are very cyclical. When financial circumstances worsen and/or rates of interest rise, demand for its diggers, vans and plant tools — which function underneath the Sunbelt model — tends to comply with swimsuit.

And so Tuesday’s half-year replace got here in fairly weak.

Revenues rose 2% between Might and October, to $5.7bn, whereas rental revenues elevated 6% to $5.3bn. Nevertheless, this was worse than anticipated, and prompted pre-tax revenue to drop 4% over the interval, to $1.2bn.

Ashtead mentioned this was attributable to troubles in North America the place “local construction markets have been affected by the prolonged higher interest rate environment.” Issues had been particularly extreme within the US the place the enterprise sources 92% of group earnings.

Steering downgraded

Full-year US rental revenues at the moment are anticipated to rise between 2% and 4%, Ashtead mentioned, down from a earlier forecast of 4% to 7%.

This additionally means corresponding group revenues are tipped to extend between 3% and 5%. Development of 5% to eight% had beforehand been anticipated.

Deliberate capital expenditure has additionally been trimmed in response to the harder circumstances. That is now put at $2.5bn-$2.7bn for the complete yr, down from the $3bn-$3.3bn invoice beforehand touted.

Rays of sunshine

Whereas it was a reasonably grim replace total, there have been some crumbs of consolation for buyers to rejoice.

Ashtead’s free money influx was sturdy at $420m, flipping from a $355m outflow the yr earlier than. So full-year free money circulate estimates had been upgraded to $1.4bn from $1.2bn beforehand.

As a consequence, the agency introduced plans to repurchase $1.5bn value of its shares through the subsequent 18 months.

Ashtead additionally tipped revenues to choose up if (as anticipated) rates of interest proceed to fall. It mentioned that “underlying demand continues to be strong” in North American building markets, including that “we expect this segment to recover as interest rates stabilise.”

In different information, Ashtead introduced plans to change its main itemizing from the London Inventory Change to the US “over the following 12-18 months.“

Whereas a blow to the UK inventory market, that is prone to have little-to-no hostile affect on shareholders.

What does this imply?

As an proprietor of Ashtead shares, Tuesday’s replace is of course a disappointment. Nevertheless, it doesn’t have an effect on my bullish view on the corporate’s long-term potential.

The rental large can’t management exterior circumstances. It may well solely handle the way it responds to the broader setting. And immediately’s replace exhibits it’s making a very good fist of it, with natural revenues persevering with to develop.

I’m additionally inspired by Ashtead’s bettering stability sheet regardless of powerful circumstances. Sturdy free money circulate meant the corporate’s net-debt-to-EBITDA ratio improved to 1.7 occasions, additional contained in the agency’s goal of 1 to 2 occasions.

This units the corporate up to proceed its profitable long-term growth technique.

Regardless of already proudly owning Ashtead shares — it’s the most important single holding in my portfolio — I’ll take into account growing my stake within the coming days.