The share price of temporary power supply hire group Aggreko (AGK) recently ticked up in the wake of a note published by BoA/Merrill Lynch, which suggested that group revenues would return to growth in 2017, as power demand in emerging markets caught up with cheaper oil (a key cost in running temporary power generators) - a lagged effect we've certainly witnessed before. The BoA/Merrill Lynch analysts also raised the prospect that the market, seemingly "accustomed to Aggreko disappointing" may have missed an inflection point in the fortunes of its utilities business, as market assumptions remain downcast with regard to operating margins and organic growth rates.
- Inflection point for key market
- Operational gearing
- Turnaround in emerging markets
- Strong new business pipeline
- Institutional short positions
- Problems in Venezuela and Yemen
Does the IC concur? Most certainly; following a strong first quarter, the idea that trading performance in this key segment of the business has bottomed out is no longer at odds with prevailing trends given a 486 megawatt (MW) order intake compared with 388MW the same time last year. True, until recently trading had been resolutely bearish and the group has said it is cautious about its ability to convert more work from its strong pipeline into firm orders. Nevertheless, we think the group's recent performance provides good grounds for optimism.