Aggreko has warned of challenging market conditions for the rest of the year, as the temporary power supply business reported a 7% drop in third quarter revenue.
But its shares have added 72p to £10.04 as it said overall second half revenue would be similar to the 2% decline seen in the first six months, and it was keeping its guidance of full year profits of between £250m and £270m.
It said revenues in its rental business was down 1%, with a weak oil and gas sector partly offset by stronger growth in other areas such as petrochemical and refining.
Power solutions saw revenues fall 11% but within this, industrial was up 12% helped by a successful contract for the European Games in Baku.
Traders said there was an element of short covering in the share price rise, given a significant level of shorting by hedge funds.
Analysts were not overly enthused. RBC said:
We have flattish profits factored in for next year, with a reduction in underlying trading offset by cost savings. However, we do continue to see some risks to forecasts from a weaker resources sector, tough pricing and potentially higher churn given 2016 rebids. Whilst the balance sheet is strong and there remains potential for special dividends, we are unlikely to get any clarity on this until next March. We see no real reason to buy the stock in the near-term – we remain at sector perform.
At Stifel, Caroline de La Soujeole issued a sell recommendation and said:
These figures are underwhelming as expected, reflecting on-going market challenges... Our view is that Aggreko is still facing many headwinds, with end markets challenging, risks rising and returns declining.
Peel Hunt’s Andrew Nussey also has a sell rating:
We retain our December 2015 pretax profit [forecast] of £250m to give earnings per share of 70.0p. For December 2016 we reduce our high end £268m forecasts to £250m (consensus £245m) to give earnings per share of 70.0p from 74.8p.
Shares trading on revised 13.3 times December 2016 are likely to edge better on ‘relief’ but company still faces trading challenges. Aggreko remains a quality long term proposition, but likely to be better entry points.
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