Aggreko's shares have been on a turbocharged run, but, as the group's growth slows, its borrowings rise and the risk of bad debts increases, they are looking exposed on a punchy rating of 20 times forecast earnings. True, Aggreko will get a one-off boost from a £50m deal to help power London's Olympics and the order book is at record levels, but, with weaker trading highlighted in the second quarter and City analysts cutting their profits forecasts, the shares look set to blow a fuse.
- Record order book
- Stock market favourite
- Growth slowing
- City analysts cutting forecasts
- Rising debt levels
- Share rating well above its average
Analysts at broker JPMorgan Cazenove say that the slowdown in Aggreko's so-called 'local' business - anything that involves supplying temporary power for one-off projects - has been "greater than expected", a reminder of the "cyclicality inherent" in the group. Responsible for 58 per cent of sales and 40 per cent of cash profits, the local business saw revenue growth (excluding currency impacts and one-off events) slow from 22 per cent in the first quarter of 2012 to just 5 per cent in the second. North America experienced the sharpest slowdown from 22 per cent in the first quarter to 2.5 per cent in the second, as demand prompted by shale-gas explorers last year was not repeated. This slowing first half follows a weaker 2011, when trading profits fell from £142m in 2010 to £121m.