Aggreko shares bounce on update

Aggreko’s (AGK) shares rose 6 per cent after a trading update that suggested the gloom that accompanied the first-half results back in August could be dissipating. The temporary power supplier said that trading in the third quarter was in line with expectations with underlying margins and revenues slightly ahead of same period last year. Geographically, the Americas remain solid with revenues there up 6 per cent. Europe, Middle East and Africa also put in a good show with revenues up 8 per cent boosted, by contracts in Cote d’Ivoire and Mozambique.

Aggreko said that revenues in the power projects division, which operates power plants for use in temporary crises, are expected to be slightly down in the second half when compared to the prior year. But they will be ahead of revenues in the first half as new gas projects offset reduced revenues from military work and Japan. The pipeline of prospective work is strong with the amount of megawatts quoted for over the last six months hitting record levels, but there has yet to be a pick up in these quotes converting to actual projects.

JP Morgan says…

Neutral. The risk to estimates is probably still somewhat negative, especially for 2014 forecasts, and we have cut our figures again to account for some lower pricing assumptions. Full-year EPS estimates have been downgraded by 2 per cent to 90.1p, and our 2014 EPS estimate has been cut by 7 per cent to 84.6p. This means Aggreko’s shares trade on a 2014 PE ratio of 18.9, inline with the business services sector. However, the shares have been the worst performers in the sector this year, and could be due a bounce given the improved outlook.

Panmure Gordon says…

Buy. All to play for in our opinion, with a prospect pipeline which remains highly encouraging but a conversion rate that leaves the fourth quarter an important period. The outlook for capital expenditure offers some encouragement for optimism in 2014, but it's early days yet. Given the negative expectations ahead of this trading update, we feel it should be taken well. We have adjusted downwards estimates for both the current year and 2014 to reflect currency updates. Our 2013 EPS has been cut by 2.9 per cent to 93.9p and our 2014 EPS forecast cut by 4.7 per cent to 86.8p.