November Rental Sentiment Index Edges Upward, Piper Jaffray/RER Survey Shows

Piper Jaffray, in partnership with RER, this week announced the Rental Sentiment Index in November was 6.5, an increase from the RSI of 6.2 in October, signaling modest-to-moderate expansionary activity and increased industry growth expectations ahead.

The Rental Sentiment Survey, which gauges the outlook of the construction equipment rental industry, polls industry executives for their expectations on rental revenues, rates, volumes, utilization, capital expenditures and the general outlook for the rental industry. The Rental Sentiment Index is standardized on a scale from 1 to 10, with 1 signaling a significant downturn and 10 signaling significant expansion in the current calendar year.

Fifty-five percent of respondents expect 2013 year-over-year rental revenue growth to exceed 7 percent, and notably, 19 percent expect growth greater than 15 percent, according to the survey. In November, just 6 percent of respondents expect rental revenues to decline in 2013. Respondents note that “rentals and sales continue strong growth” and believe 2014 will be “improved compared to 2013.”

Sixty-nine percent of those surveyed expect rental rates to be flat to up 4 percent in 2013. One respondent noted that rate growth is limited by price cutting by competitors just as rates are starting to improve.

“Low growth in rental rates is consistent with increasingly difficult rate comps and blended rates that are approaching all-time highs,” said George Tong, research analyst, Piper Jaffray. “We believe rental revenue growth acceleration this cycle will be driven by volumes, not rates.”

Fifty-eight percent of those surveyed in November expect rental volumes to be up at least 5 percent, and notably, 22 percent expect volume growth in excess of 10 percent. Survey participants believe “volumes are headed in the right direction,” and are “adding new equipment” in response.

Of those surveyed, 51 percent indicated their outlook on the equipment rental industry is “slightly improved” or “significantly improved” compared to last month. In fact, in November’s survey, positive, open-ended commentary on the equipment rental environment outnumbered cautious commentary nearly two to one.

November survey averages indicate expectations of high single-digit rental revenue growth for 2013, reflective of a strong rental environment with room for growth acceleration to high-single/low-double digits in 2014. The survey data indicate rental revenue growth will be driven by 3-percent rate growth and 4.9-percent volume growth with mix contributing nominal impact.

“Survey participants anticipate time utilization for 2013 to be 54 percent, which we believe has room to go higher as the construction cycle continues to play out,” said Tong. “Respondents expect average 2013 rental capital expenditure growth of 7.8 percent, pointing to an expansionary environment.”

The Rental Sentiment Index is quantitatively derived by normalizing multiple choice responses from the survey to be on a 10-point scale, aggregating the normalized responses based on predetermined weights for each survey question and weighting responses by participants based on the size of their rental operations. The Rental Sentiment Index is designed to provide a quick summary of each month’s survey results and easily tracks changes in the industry outlook over time.

The survey population consists of executives and senior managers in the construction equipment rental industry covering every region of North America representing more than $13 billion in annual revenues. November results are based on a sample size of 140 respondents. Thirty percent of survey respondents indicated their company has more than $10 million in annual revenue.

Piper Jaffray is an investment bank and asset management firm, serving the needs of corporations, private equity groups, public entities, non-profit entities and institutional investors since 1895. It is headquartered in Minneapolis.

RER has covered the equipment rental industry since 1957, providing its readers with a mix of news, features and product information. For more information, visit www.rermag.com.