June 14, 2016 / 7:02 AM / a year ago

UPDATE 2-Ashtead to buy back shares, full-year profit beats estimates

(Adds CEO, analyst comments, details, share movement)

By Esha Vaish

June 14 (Reuters) - Ashtead Group Plc announced a share buyback of up to 200 million pounds ($284 million) for the current financial year, after strong North American growth helped the industrial equipment hire group beat full-year profit estimates.

The company also raised its full-year dividend by 48 percent to 22.5 pence, citing expectations of significant free cash flow generation due to strong margins and lower costs for fleet replacement in the current year.

Shares in Ashtead, which hires out diggers and tools on short-term contracts, rose almost 4 percent, making it the top percentage gainer on London's bluechip index.

The company said it expected "good" earnings growth, as seasonally higher demand for fleet on rent seen during spring had continued into the new financial year.

Chief Executive Geoff Drabble told Reuters that the company expected capital expenditure to grow by double digits to mid-teens in North America and by mid- to high-single digits in the UK.

"Two-thirds of our growth continues to be structural growth, not market growth, so we will grow as we open new locations, take market share and as our customers choose to rent rather than own," he said.

The London-listed firm has greatly benefited from the rebound in U.S. construction markets, particularly in the private sector.

That has helped it outperform rivals with more exposure to the struggling oil and gas sectors, including U.S. peer United Rentals Inc, which forecast adjusted core earnings lower than some analysts' estimates, citing concerns over its oil and gas and Canada businesses.

However, U.S. construction spending recorded its biggest decline in more than five years in April. Ashtead makes about half of its revenue from the construction sector.

"I think the end market growth will be a percent or two less than it was, but it will still be good growth," Geoff said, declining to give specifics about an earnings target.

Brokerage Jefferies retained its pretax profit estimate of 691 million pounds for the current year ending April 2017.

On Tuesday, Ashtead also reported a 24 percent rise in pretax profit at constant currency to 645.3 million pounds for the year ended April 30. This came in ahead of analysts' estimate of 620.1 million pounds, according to a company-compiled consensus.

Rental revenue at constant currency rose 17 percent to 2.26 billion pounds. The reported figure stood at 2.54 billion pounds.

Ashtead's U.S. division Sunbelt, which accounts for about 86 percent of revenue, reported a 27 percent rise to 2.18 billion pounds.

The company's shares were up 0.7 percent at 964 pence at 0926 GMT, outperforming the FTSE 100, which was down 1.4 percent.

$1 = 0.7053 pounds Reporting by Esha Vaish in Bengaluru; Editing by Sunil Nair

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