Powerful profits from Aggreko give short-sellers burnt paws

Published on Thursday 5 March 2009 20:47

SHORT-SELLERS were nursing heavy losses last night after temporary power provider Aggreko reported a 52 per cent rise in profits and predicted its 2009 performance would be "well ahead" of market expectations.

Despite the Glasgow-based company attempting to reassuring the market about trading in December, short-selling of its shares has increased in recent weeks, sending them to a two-year low on Tuesday.

But the short-sellers were caught out yesterday after the firm posted 2008 pre-tax profits of 190 million and said that, despite the global economic slowdown, the start of 2009 had been better than the same period last year. Aggreko shares closed up 9.3 per cent at 412.5p, after trading as much as 20 per cent higher during the day.

Aggreko's chief executive Rupert Soames yesterday maintained that short-selling was "the nature of the business" of being a listed company.

But he added: "One might say … if there is a buyer out there short of our stock, he's got rather singed paws this morning."

While the profits figure had been forecast, Aggreko maintained that it expected overall demand in 2009 to be level with last year's. If the pound remained at its current historically low levels, this would lead to profits being ahead of last year.

Soames said there was no evidence so far that demand would weaken in the second half, but matching the end of 2008 would be difficult, a period boosted by the contract to supply the Beijing Olympics and revenue stemming from the worst hurricane season in the US for several years.

However, he said demand remained strong so far this year, with Aggreko asked to give quotes for new temporary power projects in more than 40 countries in the past three months. Soames said: "The challenge will be converting inquiries into contracts. But I would rather have a high number of inquiries and a low conversion rate than the other way around."

The company disclosed it had renegotiated 160m of debt that was due in September, with none of the company's debt now due for repayment until the second half of 2011. Its average interest rate is less than one percentage point above Libor.

Aggreko, which provided much of the power for Barack Obama's Washington inaugation, believes demand for its generators has been boosted by the credit crunch, with customers who are unable to raise finance to build new infrastructure projects forced to hire generators.

Soames said the company did face additional risks from the recession and a fall in commodity prices, which increased the risk that customers would default on payments.

According to Crest, which tabulates trading of shares on the London Stock Exchange, about 18 per cent of Aggeko's shares are "out on loan", a measurement of short-selling levels, making it one of the most "shorted" companies in the UK.

Analysts have blamed short-selling for some of the recent weakness in Aggreko shares, coupled with fears that demand for rental power would be hit by the recession.

Since Tuesday's low, the shares have climbed 18 per cent. Analysts said that suggested a "squeeze" on the stock, as traders with short positions forced to buy up the shares quickly to cover their positions.