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Rental And Leasing Penetrates Builders; Cost-Structure Variabilization - David Wells - Thompson Research Group

67 WALL STREET, New York - January 24, 2012 - The Wall Street Transcript has just published its Equipment Rental & Leasing Services Report offering a timely review of the sector to serious investors and industry executives. This Rental & Leasing Services report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Cost Structure Variabilization - Consolidation Potential in Fragmented Industry - Commercial Rental Pricing Gains - Growth in Equipment Leasing Adoption Rates

Companies include: Ashtead Group (AHT.L); Caterpillar (CAT); Ford (F); H&E Equipment Services (HEES); Hertz (HTZ); Komatsu (6301.TYO); Penske (PAG); RSC (RRR); Ritchie Bros. Auctioneers (RBA); Ryder System, Inc. (R); United Rentals (URI).

In the following brief excerpt from the Equipment Rental & Leasing Services report, industry experts discuss the outlook for the sector and for investors.

David Wells is a Senior Equity Analyst at Thompson Research Group covering the construction equipment and construction services industries. Prior to TRG, Mr. Wells joined Avondale Partners LLC in September 2006 as an Associate Equity Analyst. Previously, he was with Accenture in its financial services consulting practice. He is a magna cum laude graduate of Wake Forest University.

TWST: Have the renters been able to come up with the equipment that's needed by this stronger demand?

Mr. Wells: It's a good question, and I think what you've seen is that even this year you've seen this businesses so that the two largest players in the industry are United Rentals and then RSC (RRR), and actually United is in the process of acquiring RSC. But you've seen both businesses have significant capex plans here this year. But very early in the downturn, I think the interesting thing is if you look at the capex that they've done, United is expecting a gross capex figure of $775 million in 2011, pretty high level of capex. They've actually grown their overall fleet size, but they're still able to rent out that equipment at very high rates of utilization. In the last quarter, they reported utilization of 73.5% and low to mid 70s is kind of the theoretical max there. So the interesting thing is they've been able to buy the equipment, and they've done so and have been pretty aggressive about buying it, but they've been able to get it out on rent very, very quickly. This is just another example of the level of demand that's out in the marketplace right now.

TWST: Is this level of demand easy to accommodate, or have they gotten better at gauging what the market wants?

Mr. Wells: It's probably a little of both. It's tough to separate out the two. I think if you look though at that level, I mean they were at 73.5% in Q3. In October alone they were at 74.5%. At those levels, you've got to have kind of both cylinders firing, so to speak, where you've certainly got the right mix in place but certainly there is - you've got to be supported by the demand. And really, I mean you see the mix does move around but it's not as significant as you might think. I mean, it's kind of moving on the margin here and there, I mean it's fairly consistent over time.

TWST: Do the players in the industry have the balance sheets to go ahead and do kind of a roll-up consolidation?

Mr. Wells: It's interesting. So United buying RSC I think was certainly two big competitors, but they've had no access-to-capital issues where they've been able to refinance debt and issue more debt across the downturn here. And so they've got to issue about $2.2 billion worth of new high-yield notes in association with this acquisition, but they've gotten good visibility from their bankers that that shouldn't be a problem.

There's a competitor called Sunbelt Rentals here in the U.S. owned by an English conglomerate called Ashtead Group (AHT.L), and Ashtead actually has - and I don't follow them as closely I guess just because they have a like U.K. and European business. But anecdotally, as you look at their balance sheet, it appears to be in good condition where they would have some capacity to do that, continue to do some further acquisitions.

Hertz (HTZ), the car rental provider Hertz, also operates an equipment business called Hertz Equipment Rental. The tough thing there I think is that Hertz has to compete with other businesses for capital, and frankly that's been one that we've kind of wondered for a long time, why the car rental parent doesn't just look to monetize that asset. Maybe that's something that could happen where they would be willing to put that on the marketplace here and just kind of focus on their core business.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This Rental & Leasing Services report is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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