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Aggreko freezes dividend

Aggreko outlines strategic priorities to push the business back into growth.
August 10, 2015

The challenges faced by power rental group Aggreko (AGK) during the first half of this year, including a slowdown in the North American oil and gas sector and security anxieties in Yemen, were well flagged. In response to changing markets and a deceleration in growth, Aggreko has undergone a reorganisation. Earlier this month the group was split into two segments - power solutions and rental solutions. Management has also targeted cost savings of £80m by 2017, and is intent on delivering operating margins and returns on capital of around 20 per cent in the medium term. However, as a result of the upheaval, management expects these metrics to be lower in the short term.

IC TIP: Sell at 1141p

An increase in provisions for bad debts and the continuing slowdown in the energy sector drove trading profit down by just over a quarter in the Americas. Revenue for the region's local business was down 2 per cent. Pricing and volume pressure in the North American oil and gas sector may have suppressed margins, but 'mid- and downstream' sectors such as petrochemicals and refining performed reasonably well during the period. Revenue for power projects was down 15 per cent in the region due to reduced running at the group's Panama plant and a reduction in military work. The Asia, Pacific and Australia (APAC) segment was the group's weakest spot - trading profit declined by half to £13m. This was predominately due to pricing pressure on a power projects contract extension in Bangladesh.

Aggreko fared much better in Europe, the Middle East and Africa, with revenue 13 per cent higher than the previous year at £344m. Work providing 35 megawatts (MW) of power to the European Games in Baku helped grow revenue for Aggreko's regional business. Africa was a bright spot for both the local and power projects businesses. The power projects division extended 115 MW of its gas contracts in Mozambique until the end of the year and secured new work in Tanzania, Kenya and Ghana.

Deutsche Bank expects adjusted EPS of 82.02p for the full year, down from 83.23p in 2014.

AGGREKO (AGK)

ORD PRICE:1,141pMARKET VALUE:£2.92bn
TOUCH:1,140-1,141p12-MONTH HIGH:1,757pLOW: 1,141p
DIVIDEND YIELD:2.4%PE RATIO:15
NET ASSET VALUE: 414pNET DEBT:44%

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201476813036.59.38
201578110229.79.38
% change+2-22-19 -

Ex-div: 3 Sep

Payment: 2 Oct