Emergency power group Aggreko (AGK) surprises the market by saying that full-year results are likely to beat market expectations. While this sends its share price up 4.2% to £15.79, it is too early to call Aggreko's return to its glory days where earnings kept beating forecasts and the share price rallied hard.
Following two profit warnings in 2012, many investors this year lost faith in the £4 billion cap. Analysts downgraded their 2014 forecasts earlier this year to reflect a slow order intake for power projects. There's numerous 'sell' ratings on the stock including Canaccord Genuity which is worried about slow conversion of prospects into sales, pricing pressure, currency headwinds and material contracts coming to an end in 2013.
Numis last week issued a 'sell' note, saying the stock was fully valued. The stockbroker also cited the lack of contract wins and unfavourable foreign exchange rates for the bearish stance. It comments: 'management have for the past decade set forth with the Aggreko story of a global power demand/supply imbalance leading to the requirement for temporary power solutions. Many customers have converted and the global scope and scale of the group’s operations has resulted in a decade of growth.'
It adds: 'Management has continued to preach to utilities/government the attractions of temporary power solutions in its Power Projects business but the lack of conversions in 2013 has led to a weak order intake. The reason appears to be the decision making process which is less urgent than historically when economies were more buoyant.'
Aggreko today reports strong cash generation thanks to lower capital expenditure with net debt £200 million lower than the previous year. That should put net cash below the £400 million market at the year-end. It has won an 80 megawatt (MW) diesel contract in Panama and a three-month extension to its 150 MW diesel contracts in Japan to the end of the first quarter in 2014. It will also supply temporary power for the 2014 FIFA World Cup and the Glasgow 2014 Commonwealth Games. Numis reckons it needs at least 900 MW of annual contract wins 'just to stand still'.
Cantor Fitzgerald believes 2013 numbers have beaten expectations due to the release of a bad debt provision. It notes that Aggreko has not yet released any guidance for 2014.
