Aggreko warms up for cold-weather operations with Canadian deal

AGGREKO has begun a drive into new niche markets, paying almost £20 million for the leading power supply firm working on Canadian oil sands projects.

Glasgow-based Aggreko is to pay up to CN$38.7 million (£19.5m) to acquire Power Plus Rentals, an Edmonton-based company which provides generators for projects in the Athabasca oilsands in Alberta and Saskatchewan.

Aggreko chief executive Rupert Soames said yesterday that, despite opening a depot in Edmonton last year, the company had a "negligible" share of the growing oilsands market.

"We suspected there would be a market there so we opened a small depot in Edmonton, and we did some work, but it became obvious that Power Plus were the market leaders, so we approached them and have been in exclusive negotiations for some time," Soames said

Soames said Power Plus was achieving compound growth of 35 per cent a year with margins of around 50 per cent, reporting earnings before interest and tax, EBIT, of £2.6m in the year to July 31.

"It's a very successful business and a highly profitable one, and it is absolutely the case that the price we've paid reflects the fact that the business is profitable and fast-growing, but we think it is a fair price," he said.

Aggreko is hoping to benefit from Power Plus's expertise in assembling generators designed to operate in the extremely low temperatures of Northern Canada, in particular for its office in Moscow which opened earlier this year.

Saomes commented: "A significant portion of the world's undiscovered oil and gas and minerals lie in very cold places, so having the expertise and know how to operate in very cold places and conditions, we think, will be very important strategically, going ahead." After buying the temporary power business from General Electric, Aggreko's main competitor, for £111 million in 2006, the company began seeking niche growth markets.

Soames said yesterday that at any time the company could be in negotiations with several firms which operate in niche markets where Aggreko saw good growth potential.

Shares in Aggreko, which was formed as a spin-out of trucking company Christian Salvesen, fell 7.5p to 660.5p, valuing the company at £1.8 billion.

It reports interim results on Tuesday.

In June the company said pre-tax profits for the six months to 30 June were expected to be around 40 per cent higher than the £47.5m reported in the first half of 2007.

Oriel Securities analysts Paul Checketts said given the price Aggreko paid for Power Plus – seven and a half times earnings before interest and tax – "clearly Aggreko see this as a business with strong growth characteristics".


Making power play pay

FOR a company that was supposed to gain most from helping out in a disaster, Aggreko seems to have performed well given the lack of major hurricanes in the US this year.

The Glasgow-based temporary power supplier gained prominence, and business, from events such as Hurricane Katrina – coming to the rescue of citizens across Florida where storms had destroyed infrastructure.

In recent announcements, though, Aggreko has not even mentioned weather extremes, and despite the lack of such disasters, has continued to inform the market to raise expectations, with profits consistently above forecasts.

The reality for Aggreko, once part of a trucking company, is that the shortage of power across the world has become so widespread that it does not need to rely on the vagaries of storms, and its business is now becoming so diverse it seems close to being immune to business cycles.

Even a recent slowdown in the US construction industry this year has not been enough to hit it, with the unused kit which supplied the Americans now shipped off to China where the company is apparently making a decent crust supplying the Beijing Olympics.

Aggreko has become a leading player in sports events and festivals, also providing kit for the European Football Championships, the Open golf tournament and the Glastonbury Festival in recent months – events which are destined to go ahead, in good economic conditions and bad.

While these gigs are the glamorous end of the business, it is projects supplying energy hungry factories and major portions of the domestic supply in many African nations, where the Scots group makes its real margins.

Now the company appears to be scouring the world for new targets, paying almost £20 million from its cash reserves on a deal which will make it a leading player supplying companies extracting hydrocarbons from oil soaked sands in Canada, a major and still growing industry in remote locations.

With little in the way of real competition, and so much of the world's power infrastructure in need of repair or replacement, any headwinds, be they literally in the gulf of Mexico or figuratively in the subprime housing market of the US, seem almost irrelevant.

TODAY may herald the start of a new dawn in air travel as the Competition Commission reports its findings on its investigation to BAA, and the knives are certainly out for the company which has a stranglehold on Britain's major airports.

Ryanair's Michael O'Leary has been viciously attacking the airport operator for years, claiming BAA, both as an independent company and as part of Ferrovial, was inflating prices and holding back development, demanding airports in London be sold.

But yesterday it was another Michael, Sir Michael Bishop, who warned – in far more measured terms – that even forcing BAA into a sale of some of its seven airports may not be enough.

The chairman of BMI argued that BAA should not even be allowed to operate a third runway, or another terminal at Heathrow, the world's largest airport, warning that if progress was not made soon Paris or Amsterdam may steal its role as Europe's main hub, with British businesses everywhere losing out.

In Scotland there will also be interest in today's report.

Scottish business groups have been much less willing to criticise BAA for its role in the development of Edinburgh, Glasgow and Aberdeen airports than those in the south.

But airlines such as EasyJet have long complained that the costs of flying to and from Scotland, particularly in the Central Belt, are kept artificially high, citing examples of other areas where competing airports in close proximity "fight like cats and dogs" for new business.

Arguments in support of the status quo in Scotland are that BAA has invested heavily in the airports, with dozens of new routes opening over the last decade or so, helped by the smooth management of this investment.

Detractors argue that one company should not be allowed effectively to decide on the airline facilities easily available to the majority of Scots.

The betting seems to be strongly against BAA being allowed to retain the status quo, with reports that Manchester Airport Group, owner of the city's airport, have already approached BAA about buying Gatwick.

There is also growing expectation that BAA will be forced to decide between Edinburgh and Glasgow, in addition to offloading one of its three London airports.