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Aggreko's cost control improves margins

With the upcoming Tokyo Olympics likely to give the equipment rental group a boost, management is looking to achieve a return on capital employed in the mid-teens in 2020
July 30, 2019

With last year benefiting from both the Commonwealth Games and Winter Olympics, 2019 was always going to be tougher for Aggreko (AGK). Indeed, a somewhat mixed bag across divisions saw underlying revenue fall by 4 per cent but improved margins pushed operating profit up 12 per cent to £81m.

IC TIP: Sell at 781p

Underlying revenue in the core rental solutions business was largely flat, although as better cost discipline lifted margins by 1.1 percentage points, underlying operating profit rose 12 per cent to £47m. That was despite average megawatts (MW) on hire falling by 5 per cent and a five percentage point reduction in utilisation to 56 per cent. North America remained the business's growth engine, where revenue was propelled 7 per cent higher by strong demand from the oil and gas markets. 

However, underlying utility power solutions continued to disappoint. Revenue declined by 7 per cent, due to the timing of on and off-hires causing an 8 per cent reduction in average MW on hire. Trade and other receivables did improve, but payment delays from geopolitically unstable regions persisted and $84m of bad debt provision included an additional $3m set against specific contracts in Yemen.

Peel Hunt anticipates adjusted pre-tax profit of £197m and EPS of 49.5p for the full year, rising to £241m and 60.4p in 2020.

AGGREKO (AGK)   
ORD PRICE:835pMARKET VALUE:£2.14bn
TOUCH:834.8-835.2p12-MONTH HIGH:891pLOW: 690p
DIVIDEND YIELD:3.2%PE RATIO:17
NET ASSET VALUE:531p*NET DEBT:58%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20188575915.859.38
20197686015.349.38
% change-10+2-3-
Ex-div:5 Sep   
Payment:1 Oct