What’s new
• First-half sales growth set to reach 20 per cent
• Robust demand, driven by developing markets
• Full-year outcome to beat expectations
Temporary power supply specialist, Aggreko, released an impressive trading update earlier this month. Management expects revenue (on a constant currency basis) for the half-year to end-June to rise 10 per cent, while group trading profit is set to grow by 20 per cent.
Robust demand - especially from Asia and central and south America - leaves Aggreko set to secure orders for 900MW of new work in the first-half. It's likely to put around 50 per cent more generating capacity on hire than it has achieved in any previous six month period. And the hire rate has accelerated markedly during the second quarter; management expects to start the third quarter with around 18 per cent more generating capacity rented out than in the prior year.
The group has also received a boost after securing a large amount additional work for the FIFA World Cup - making that contract Aggreko's largest ever for a sporting event. Management now expects that the full-year performance will be "significantly better" than anticipated than at the time of April’s trading update. Aggreko is boosting its investment in its kit, too - fleet capital expenditure will now reach around £265m this year.
KBC Peel Hunt says…
Hold. Following the positive trading statement, we have upgraded our earnings forecasts by 19 per cent for 2010 and 12 per cent for 2011. We now expect adjusted pre-tax profits of £283m for 2010, giving adjusted EPS of 72.3p and a dividend of 14p. The shares now trade on 19.5 times 2010’s forecast earnings and are rated on an 8.7 times enterprise value to cash profits multiple. Given the strong management, excellent global positions and inherent cash generation capabilities, that premium is justified. But such a rating also limits the upside.
Numis Securities says…
Hold. Aggreko has an outstanding position in the global market for temporary power and, with a strong cyclical recovery adding to the outstanding long-term structural growth drivers, the outlook has improved significantly in the second quarter. Following an exceptional run for the shares, we are loathe to chase them any higher in the short-term - given that they now trade on well over 18 times 2010’s expected earnings. However, we see the shares as a core holding and would look for buying opportunities. Expect pre-tax profits of £291m for 2010, giving EPS of 74.6p.
