The S&P/ASX 200 Index (ASX: XJO) delivered robust gains recently but there’s one ASX sector that’s being left behind – although the tide could be turning.
This group of ASX shares are industrial equipment rental companies and their shares haven’t been invited to the party.
The ASX sector that’s the underdog in this bull market
For instance, the Seven Group Holdings Ltd (ASX: SVW) share price has fallen 7.4% over the past year.
The Emeco Holdings Limited (ASX: EHL) share price and NRW Holdings Limited (ASX: NWH) share price have also fallen behind with an 11% drop and 2% gain, respectively, over the year.
In contrast, the ASX 200 index jumped 9% over the period, thanks in large part to surging commodity prices.
Turnaround could be in the wings
But there might be too much pessimism in this ASX sector. The latest report from UBS on a “fireside chat” with the chief executive of Orange Hire, Greg Parfitt, highlights the sector’s strong outlook.
Orange Hire is an Australian private company operating in the infrastructure and equipment hire markets. It owns a fleet valued at around $110 million across the east coast of the country.
Best conditions in 30 years
There were four key takeaways that UBS got from the interview. The first is the accelerating utilisation rate for Orange Hire’s equipment which now stands in the low 70% from mid 50% in the December half. The improvement comes despite adverse weather disruptions.
There is also a rebound in tendering activity for equipment hire. Demand is strong across key construction sectors, like infrastructure, housing, mining and renewables.
“Greg noted these are the most favourable conditions he has seen in over 30yrs in the equipment hire industry,” said UBS.
Pricing power meets bullish outlook
The surge in demand comes at the right time for the sector too, which like the rest of the economy, is facing rising costs.
“The strong demand backdrop is supporting a favourable pricing environment with Orange Hire having successfully pushed through two c.3% price increases in FY22, with another planned within the next 3mths,” added the broker.
Just as importantly, the outlook for the sector is positive for FY23. Parfitt is expecting equipment hire sales growth to hit at least double digits. The growth is driven by the strong civil construction tendering environment, as well as price increases.
The ASX share that is best placed to benefit from this thematic is Seven Group, according to UBS. The group owns Coats Hire, Australia’s largest equipment rental firm, and WestTrac, which is a Caterpillar equipment dealer.
The post This lagging ASX sector could be next to outperform appeared first on The Motley Fool Australia.
Wondering where you should invest $1,000 right now?
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.
*Returns as of January 12th 2022
More reading
- These 3 ASX 200 shares are topping the volume charts on Wednesday
- A toast! The Endeavour share price just hit an all-time high
- Magellan share price sinks again, down 6%
- Is Newcrest Mining considered a defensive ASX share?
- ASX 200 (ASX:XJO) midday update: Block and Zip sink, Paladin Energy raises $200m
Motley Fool contributor Brendon Lau owns Emeco Holdings Limited and Seven Group Holdings Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
from The Motley Fool Australia https://ift.tt/2KPJyTL
Leave a Reply