US

Dodge Construction Starts continue to show strength and growth. We believe we are entering a period of moderate growth after three years of amplified non-residential and non-building growth. This positive outlook is underpinned by market dynamics such as deglobalisation and Federal support.  

As we have noted before, the Infrastructure Investment and Jobs Act, the Chips and Science Act and the Inflation Reduction Act are all fuelling growth. These provide an underpin to demand in a market which is very active and we expect this to continue. 

The non-residential and non-building components of the construction end market remain strong. Furthermore, the continuing evolvement of the mega project landscape will drive further construction as infrastructure is developed around the mega projects to support their operation and future workforce. For example, if a major manufacturing facility is built for electric vehicles or for power storage, this will create a significant number of new jobs and infrastructure will be required to service and support the people taking those new jobs and their families. As such, we believe most mega projects will likely generate broader ecosystems, creating significant opportunities for growth. 

Market share in the US 

We continue to grow our market share in the US and even though we are the second largest equipment rental company, there remains plenty of room to grow. Our major competitors are United Rentals and Herc Rentals with 15% and 4% respectively. Home Depot, and H&E have shares of c. 2%. Most of the remainder of the market is made up of small local independent rental shops, with five or fewer locations, comprising c. 50% of all rental locations in the US. 

Much of our market share gain comes from these small independents when we set up new stores or acquire them, and hence our runway remains long with ample opportunity for bolt-on investments. In our industry size and expertise matters. Scale brings cost benefits and sophistication in areas like technology and other services, and this leads ultimately to further consolidation. The proportion of the market enjoyed by the larger players continues to increase and we have clearly been a major beneficiary of this trend. 

This market share analysis is based on the latest definition of the rental market, which incorporates a broader range of equipment, much of which is used in non-construction across a wide range of end markets. These markets include the facility maintenance, repair and operation of the geographic markets we serve, characterised by square footage under roof. In the US there is more than 100bn square feet under roof with minimal rental penetration currently. Thus, despite the change, we believe the size of the rental market is still understated and hence our, and everyone else’s, market share is overstated. This only serves to increase the opportunities for growth. 

We are confident that as the market grows, our share will also increase. We continue to set ambitious targets with our long-term market share target of 20%. The speed at which we increase our market share is in part a function of how quickly we can get new locations up and running. However, as noted above, our market share growth also comes from continuing to broaden both our end markets and the range of equipment we have available to rent in each location. 

The combination of our business model, the continued attractiveness of our markets and the long-term trend to rental, provides the perfect environment for us to achieve our goals. In addition, our market share gains accelerate as we make the most of our scale advantages. 

As we increase our market share and grow our Specialty businesses, they become a greater proportion of the business mix across the cycle and accounted for c. 30% of revenue in 2023/24. The acquisitions we make are often to expand into a new specialty area or to develop an existing one and then we supplement them with greenfield openings. 

The trend to rental 

Rental penetration continues to deepen and those benefitting from this increased rental penetration are the larger, more experienced, more capable rental companies who can position themselves to be there as partners for this increasing customer base, delivering more complex solutions, and capitalising on this larger market. 

Rental still only makes up to around 55% to 60% of the US market compared to around 75% in the UK. However, this is a broad average with penetration levels ranging from low single-digit percentages for, say, floor scrubbers to 90%+ for large aerial equipment. We like specialty products because they are at the low end of this range, which provides greater scope for growth. We see the potential market penetration for rental equipment to be well over 60% in the US. 

The drivers of this evolution include significant cost inflation in recent years associated with the replacement of equipment, technical changes to equipment requirements and health, safety and environmental issues which make rental more economical, easier and safer. Environmental regulations have driven further rental penetration through the reduction in fleet size by those customers who previously may have chosen to own some, if not all, of their larger equipment needs. Customers and smaller competitors with older fleets are faced with heavier replacement spend causing them to replace less and rent or, in the case of smaller competitors, reduce their fleet size. Furthermore, the difficulties of getting to grips with new technology and maintenance requirements have also caused more operators to decide to rent. Maintaining optimally serviced and therefore safe equipment can be a big outlay for a smaller operator. The diversity of our fleet helps us take advantage of this increasing trend to rental and we continue to expand the range of products we rent. 

Our development and use of technology is also driving rental penetration. Our highly sophisticated proprietary customer management, inventory and delivery tracking systems all contribute to Availability, Reliability and Ease for our customers. Sustainability is also increasingly an important consideration. Renting from us can help customers with their own sustainability aspirations. They can use the most environmentally friendly equipment available, reduce their own direct and indirect carbon emissions during the operation and transportation of equipment and means that they are not responsible for the disposal of the equipment at the end of its life. We save customers money by teaching them to use the right product for the right job and using it in the most energy efficient manner possible.