Pandemic saps Aggreko’s profits

Reflecting the oil price crash and cancellation and postponement of global events, portable power specialist Aggreko (AGK) saw its underlying operating profit collapse by more than two-fifths in 2020, to £136m.

On a statutory basis, the group swung to a £39m operating loss – down from a £241m profit a year earlier – on the back of £175m of exceptional charges. These impairments largely relate to legacy debts from customers in emerging markets – whose ability to pay has been furthered dampened by the pandemic – as well as writedowns on the value of equipment for which future rental demand is expected to remain depressed.

With the dip in underlying profits, Aggreko’s return on capital employed (ROCE) dropped from 11.2 per cent in 2019 to 7.5 per cent, moving the group further away from its medium-term target of a ROCE in the mid-teens.

But it was not all bad news. Net debt has come down by more than a third to £380m – equivalent to just 0.9 times cash profits (Ebitda) – and as a sign of confidence in its outlook, Aggreko has declared a final dividend of 10p per share. The group says that it is seeing a recovery in its end markets, with 2021 expected to be a year of transition” before returning to pre-pandemic activity levels in 2022.

There has been no further update on how its takeover talks are progressing. Aggreko has attracted the interest of private equity and is currently discussing a potential 880p per share joint bid from TDR Capital and I Squared Capital. As we wait to see if a firm offer arises, hold.

Last IC View: Hold, 844p, 08 Feb 2021