Power generation equipment supplier Aggreko (AGK) anticipates pre-tax profit will be lower in 2017 than 2016, prompting the stock to drop 13% to 919p.
Management is partly blaming pricing pressure in Argentina where it has its largest utility contracts.
ARGENTINIAN CONTRACTS TO HIT MARGINS
It has been operating in the country since 2008 and warns that re-pricing these contracts will impact margins and returns.
This is necessary as the risk of operating in Argentina has become higher due to strict foreign exchange controls and bond defaults.
Aggreko performed slightly worse than expected in 2016 as pre-tax profit fell from £252m to £221m, £1m lower than consensus. Net debt is 9% higher than expectations and the dividend is flat.
COULD IT GET WORSE?
Panmure Gordon & Co analyst Michael Donnelly has a ‘sell’ recommendation and speculates consensus forecasts will have to be cut for 2017, noting 40% of the current year's expected profits are 'above average risk'.
In North America, revenue has fallen 18% as a result of low oil prices. Management says its rental solutions division is showing signs of stabilisation, while the higher oil price provides grounds for ‘cautious optimism.’
