SHARES in Glasgow-based temporary power and cooling specialist Aggreko were hammered yesterday after it issued a profits warning blamed on issues including a further slowdown seen in US oil and gas markets.
In an unscheduled trading update, the group said it now expected full-year pre-tax profit to come in between £250 million and £270m, compared with a current average forecast of about £293m based on a poll of 17 analysts.
While review is likely to be upbeat, we expect investors to be nervousPeel Hunt’s Andrew Nussey
Shares fell sharply in early trading – down by some 15 per cent or so in the opening hour – although they recovered some of the lost ground later in the day. They closed 175p lower, down 12.2 per cent, at 1,255p.
In its power projects division, which provides generating capacity in emerging countries, Aggreko said that 325 megawatts (MW) of gas contract extensions in Bangladesh were entering the final stages of approval. The company expects that 180MW will be secured into the first half of 2016 and the remaining 145MW for three years.
But it cautioned that the trading terms secured for the extensions, are likely to be “less favourable” than earlier expectations. “While we will be seeking to mitigate the profit impact by reducing operating costs, there will be a net adverse impact on profits this year and in 2016,” it cautioned.
Aggreko also flagged “ongoing security challenges” in Yemen which have impacted on its ability to operate at full capacity in the Middle East country.
“We remain concerned about the impact for the remainder of the year.”
At the time of a trading update in May, the group had said that it had started to see a decline in volumes and pricing in its shale oil business and that the full-year impact of a lower oil price on our business remained unclear.
“Since then we have seen a further slowdown in North America with volumes in the shale basins continuing to decline. More recently, we have begun to see an impact on our offshore oil and gas business in the Gulf of Mexico,” it said yesterday.
“In anticipation of the approval of our Bangladesh contract, given the ongoing security challenges in Yemen, and as a result of a further slowdown in our North American oil and gas related business, we now expect the 2015 interim and full year results to fall short of current market expectations.”
The group is due to announce interim results for the half year to 30 June on 6 August.
It said chief executive Chris Weston will then outline the group’s business priorities “together with the actions being taking to position the group for future growth”.
Andrew Nussey, of Peel Hunt, said: “While the strategic review on 6 August is likely to be upbeat in tone, we expect investors to remain nervous.”
Andrew Gibb, an analyst with Investec, said the trading update had revealed a “material downward reset to market expectations”.
He had raised concerns in January that the group was entering a period of lower earnings growth and that shares were unlikely to make much headway in the medium term.
“It is hard not to be impressed with the group’s track record, but it has become increasingly clear that this will be difficult to replicate. With a management transition to absorb and minimum earnings per share growth for the near term, we see no reason to alter our negative stance.”
The broker maintains its “sell” rating on the shares.