Nanosonics' (ASX:NAN) Strong Earnings and Positive Accrual Ratio

Nanosonics Limited (ASX:NAN) has reported solid earnings and strong free cash flow, with a negative accrual ratio of -0.29 for the year to June 2025. The company's statutory earnings were significantly less than its free cash flow, which improved over the last year. Analysts are forecasting strong future profitability, with EPS growing strongly. Overall, Nanosonics' underlying earnings potential appears strong, despite its statutory profit numbers.

Ashtead Group (LSE: ASH) reported mixed results for the first quarter of 2025, with revenue growth returning to positive territory while underlying operating profit fell short of expectations. The company's first-quarter revenue rose by 2% to $2.8 billion, driven by a 2% increase in rental revenue. However, underlying operating profit decreased by 5% to $683 million, missing the expected $717 million [1].

Despite the profit shortfall, Ashtead's free cash flow improved significantly, rising from $0.2 billion to $0.5 billion due to reduced capital spending. Net debt also improved by $0.5 billion to $10.3 billion. The company repurchased $0.3 billion of shares under its ongoing $1.5 billion buyback program [1].

Ashtead's outlook for the year was upgraded, with rental revenue expected to grow by 0% to 4% for the new year (2.7% expected). Full-year free cash flow guidance was also upgraded from $2.0 billion to $2.3 billion to $2.2 billion to $2.5 billion ($2.1 billion expected) [1].

The shares were up 2.5% in early trading following the announcement [1].

Ashtead's performance highlights the importance of strong cash flow and debt management in the current economic climate. The company's ability to generate significant free cash flow despite a slowdown in operating profit underscores its financial discipline and resilience. The upgraded guidance suggests that Ashtead's management is confident in its ability to navigate the market conditions and capitalize on growth opportunities.

Analysts noted that Ashtead's recent focus on capital discipline and better utilization of its existing fleet has started to pay off, with improving cash flow and profit margins. The company's strategy of growing its specialty business, such as scaffolding, flooring, and air conditioning, also presents a higher growth and more resilient income stream [1].

Environmentally, socially, and governance (ESG) risks are generally medium for the general industrial sector, but Ashtead's management of material ESG issues is considered strong by Sustainalytics. The company reports on Scope 1 and 2 emissions, has initiatives in place to reduce emissions, and aligns these initiatives with its risk management program [1].

Looking ahead, Ashtead's North American market remains a key growth driver, with several growth opportunities ranging from onshoring of supply chains to government infrastructure and chip manufacturing projects. The company's scale and expertise in winning "mega-projects" also provide a competitive advantage in the fragmented industry [1].

Overall, Ashtead's first-quarter results show mixed performance, but the company's strong cash flow and upgraded guidance indicate a positive outlook for the remainder of the year. The company's focus on capital discipline and growing its specialty business should continue to support its long-term growth prospects.

References:
[1] https://www.hl.co.uk/shares/share-research/ashtead-q1-profit-miss-but-strong-cash-flow-lifts-guidance