Piper Jaffray, in partnership with RER, last week announced the Rental Sentiment Index in December was 6.2, signaling modest-to-moderate expansionary activity ahead. The December measurement was consistent with the expansionary readings of 6.5 in November and 6.2 in October.
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.
“On the heels of a very robust 2013, the equipment rental industry is poised for further strength in 2014,” said George Tong, research analyst, Piper Jaffray.
Forty-three percent of respondents expect 2014 rental revenue year-over-year growth to exceed 7 percent, with 9 percent expecting growth north of 15 percent. Only 1 percent expect rental revenues to decline in 2014. Respondents note “the rental environment is going strong and will continue through 2014” with construction “on the rise.”
“We believe the market will support healthy unit volume growth in an environment of robust utilization rates and rental fleet growth,” Tong added. “Survey participants anticipate time utilization for 2014 to be 55 percent, which we believe has room to go higher as the construction cycle continues to play out. Respondents expect average 2014 rental capital expenditure growth of 5.2 percent, pointing to an expansionary environment.”
Forty-four percent of those surveyed expect rental volumes to be up at least 5 percent, with 12 percent expecting volume growth in excess of 10 percent in 2014. Survey participants look for “significant increases” in efficiency and utilization to help volume performance.
Eighty-eight percent of those surveyed expect rental rates to be flat-to-up 4 percent in 2014. Rates “remain extremely competitive.”
“Survey results are consistent with our view that the industry will be propelled by volumes, not rates,” Tong said. “We expect rate growth to remain comfortably in the low-to-mid single digits, with potential room for upside based on recent pricing trends at big box shops. Rate growth above mid-single digits is unlikely in the context of increasingly difficult rate comps and blended rates that are approaching all-time highs.”
Of those surveyed in December, 46 percent indicated their outlook on the equipment rental industry is “slightly improved” or “significantly improved” compared to last month, which suggests momentum to growth. “We believe the equipment rental industry is in the early innings of a multi-year expansion cycle,” Tong concludes.
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. December results are based on a sample size of 129 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.
