Shares in Ashtead Technology (LON:AT.) tumbled after the firm cut its FY sales and earnings guidance. The global subsea technology solutions group said customers had delayed a number of Middle East projects due to the ongoing conflict.
Project delays cause company to cut guidance
In its FY25 results update, posted in March, the firm hinted its FY26 performance would depend on the extent of Middle East disruption. It repeated that message in its H1 trading update in July, saying it was working with customers and monitoring the situation closely.
Today, the company revealed a number of H2 projects in the Middle East have been postponed until 2027. Also, broader economic uncertainty and changes to vessel scheduling have delayed some projects in Europe and the Americas.
As a consequence, the board now sees FY revenue around 5% below the current consensus of £214 million. In addition, the deferral of rental revenue will adversely affect the mix and therefore the margin on sales.
A lower gross margin, combined with lower operating leverage, means adjusted EBITDA will be around 15% below forecasts. The current consensus is for EBITDA of around £59 million and a margin of 27.5%.
In theory, as we said in March and as the company has repeated today, the increased need for energy security is actually positive. However, it’s no surprise customers are pulling in their horns in face of a drawn-out conflict with no near-term resolution in sight.
What’s more concerning for investors is delays to projects outside the Middle East due to lack of confidence. Finance directors can hardly be blamed for turning off the taps until the situation clears.
The good news is Ashtead Technology has a solid balance sheet to see it through the current upheaval. Even with a 15% shortfall in EBITDA, year-end leverage will only be around 1.3 times which is easily manageable.
