AGGREKO, Scotland’s fourth-largest listed company, saw more than £1.2 billion wiped off its stock market value yesterday after warning of a “double whammy” in the year ahead.
The withdrawal of US troops from Afghanistan and a lack of major events to replace income from the Olympics – along with weaker growth in emerging markets – are among the factors expected to hit 2013’s figures.
It is the second profit warning from Glasgow-based Aggreko in as many months. In October, it said that unfavourable currency movements and an increase in bad debt provisions would affect results for this year.
Chief executive Rupert Soames admitted that the company now faced a “double whammy going into next year”. “We have got a weakening demand environment in terms of our power projects business… the other whammy going on is that we have got about £100 million of revenue that is not going to recur in 2013.”
That £100m is made up of the Olympics effect, a planned reduction in the number of US troops in Afghanistan that will lead to a further reduction in military revenues and uncertainty over whether Japanese clients intend to extend their contracts into the second half of 2013 as the country recovers from its earthquake.
Soames said that, after a year of strong growth in 2012, the economic environment in 2013 was “particularly uncertain in many of our markets”.
“It is difficult at this stage to provide a definitive view of the likely pattern of trading in 2013,” he added.
The group’s local business, which hires out generaters and cooling equipment for events such as major sporting fixtures, is expected to post continued underlying growth in 2013.
But Aggreko said the market for its international power projects arm, which provides longer-term power for homes and businesses often in developing economies, was less buoyant.
A weakening trend in economic growth in many emerging markets, which the company flagged up in October, has continued. “Our previous experience suggests that, in these circumstances, customers may in the short term be under less pressure to secure additional power generation,” said Soames.
In yesterday’s trading update, the company said it expects to increase revenues by 12 per cent to £1.6 billion in the curent year.
Underlying profits should be around 12 per cent higher year-on-year at £365m, with revenues from its local division – which handled the Olympics – up 24 per cent.
Paul Jones, an analyst at Panmure Gordon, said yesterday’s update meant he now “expects 2013 to be below 2012 – something not seen at Aggreko for some time”.
Investec said the update contained “some very mixed messages”. Analyst John Lawson said the company now “appears much more cautious on the economic outlook” and said he was downgrading his full year earnings per share forecast by 13 per cent.
But Caroline de La Soujeole, analyst at Seymour Pierce, pointed out Aggreko was a well-managed, quality business and underlying drivers in developing countries remained strong.
She expected the consensus for 2013 pre-tax profit to come down to about £355m from about £400m. It maintained a “buy” rating on the stock.
“The underlying drivers, namely the continued supply demand power imbalance in developing countries, remain strong,” she stressed.
Shares in Aggreko closed down 461p, or 21.7 per cent, at 1,664p, valuing the company at just under £4.5bn.