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Currency continues to hamper Aggreko

Exchange rates decreased operating profits by £24m.
March 6, 2019

Aggreko (AGK) is working hard to improve operational and capital efficiency, but currency movements keep undermining progress. The equipment hire giant’s management is targeting a return on capital employed (ROCE) of around 15 per cent in 2020, but with only two years to go this looks ambitious. ROCE fell 40 basis points to 10.3 per cent in the year to December 2018, though it improved 50 basis points on an underlying basis.

IC TIP: Sell at 734p

In fairness to the group, efficiency improvements increased operating profits in the core rental division, while underlying profits were up 10 per cent in the group as a whole. Progress on the cost front is to be applauded, although this should be viewed against an increase in net borrowing, which grew 5 per cent to £686m.

We have previously raised concerns over the rising level of receivables on Aggreko’s balance sheet, which could point to a decline in the quality of earnings. Receivables rose to £781m from £770m, though trade receivables (work that has been invoiced) remained broadly steady as a proportion of the overall figure. The group said it was focused on managing this issue, adding it had risen primarily due to customers’ liquidity and access to foreign currency, rather than any disputes over payment.

Analyst Jefferies is forecasting adjusted EPS of 51p in 2019, compared with 49.2p in 2018.

AGGREKO (AGK)   
ORD PRICE:734pMARKET VALUE:£ 1.88bn
TOUCH:734-734.8p12-MONTH HIGH:891pLOW: 637p
DIVIDEND YIELD:3.7%PE RATIO:15
NET ASSET VALUE:534pNET DEBT:50%
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20141.5828982.627.12
20151.5622663.527.12
20161.5217248.927.12
2017 (restated)1.7014940.027.12
20181.7618249.227.12
% change+4+22+23 
Ex-div:18 Apr   
Payment:24 May