Aggreko shares slide 7.2% on bad debt fears and forex fluctuations

By DOMINIC JEFF
Published on 19/10/2012 19:50

Shares in temporary power provider Aggreko slumped after it warned that bad debt provision and adverse exchange rates would take the edge off its financial performance.

Investors ditched the stock, which fell 7.2 per cent despite analysts backing the company and assurances that it was still trading broadly in line with expectations.

The Glasgow-based firm said its contract to support the London Olympics helped it deliver “a robust performance” in the third quarter, boosting revenues by 22 per cent against last year – or 13 per cent on an underlying basis. It confirmed the Olympics work had been worth £59 million to the company. “Overall, trading continues to run broadly in line with our expectations,” it said.

But it added: “Since our last trading update in early August, however, exchange rates have moved against us, and we have also increased our bad debt provisions; we expect that, between them, these two factors will impact our anticipated profits for the year by about 2.5 per cent.”

Aggreko deals in dollars and reports in sterling, so a stronger pound has a negative effect on its balance sheet.

Chief executive Rupert Soames said the company had reduced the amount of energy it delivered to two customers in South America and one in Africa who were not paying bills on time, pushing bad debt provision up about $12m (£7.5m) in the third quarter.

Power projects with mines in South Africa have also been postponed because of strikes, he said.

Soames also warned that weakness in its trade with emerging markets was set to hit growth in 2013.

He said: “We are a little bit more conservative in our view of the growth rates which developing markets are going to deliver next year.”

Margins in the firm’s international division have already been pushed lower by unusually high mobilisation costs of a project in Mozambique.

In the three months to September, Aggreko’s “local” business, which rents power and temperature control equipment mainly in mature markets, posted an 11 per cent rise in underlying revenue, driven by a 13 per cent rise in North America.

Its international power projects business, which provides temporary power stations mainly to developing countries, saw underlying revenues increase 15 per cent, a slowdown from 17 per cent in the first half.

The company said that its capital expenditure would fall in the first half of next year to account for the slowdown in developing economies and absorb the fleet built for the London Olympics.

Analyst John Lawson, at Investec, recommended buying Aggreko shares, following a stellar run in recent times. “Aggreko has had a robust third quarter, but extra bad debt provisions and adverse forex rates hit our 2012 estimated profits.

“That said, the group remains very active.”

Brokers Espirito Santo, Jefferies and Seymour Pierce maintained their “buy” rating on the stock, with the former citing Aggreko’s “exposure to long-term growth in demand for temporary power”.

Shares in the company closed 165p lower at 2,137p.