Rupert Soames may be looking enviously at his previous employer Aggreko, given the problems he is facing at outsourcer Serco which he joined earlier this year.
While Serco this week issued its fourth profit warning in a year and unveiled plans to tap shareholders for £550m, Aggreko seems to be chugging along nicely.
The temporary power supply business is currently at the top of a weak FTSE 100, its shares climbing 49p or 3% to £15.91 after it said trading was in line with expectations. The shares have however lost around 20% between August and October before recovery in November, and traders said part of the day’s rise could be short sellers needing to cover their positions. According to Markit 6.5% of the company’s outstanding shares are out on loan.
In its update, the company said underlying revenue in the third quarter was up 6% although after currency movements, it fell 3%. Overall, despite an uncertain market environment, it said it expected underlying full year trading profits to be similar to 2013.
Analysts mainly stuck with their hold recommendations. John Lawson at Investec said:
Aggreko has delivered an in line statement that... highlights the issue that the group seems to have now, i.e. how to grow underlying earnings in a meaningful way. Of course, the cause of the subdued results is the ending of some large contracts (such the military work in the Middle East) and currency headwinds. That said, customers in Power Projects remain unwilling to commit to much new work (despite strong market demand drivers).
Andrew Nussey at Peel Hunt said:
Aggreko’s statement confirms trading in line. However, we are mindful that the outlook for 2015 remains uncertain, given geopolitical risks and customer hesitancy. Aggreko continues to be a high quality proposition, but the shares, trading on 18 times December 2015, continue to reflect recovery potential.
Overall the FTSE 100 is down 15.10 points at 6620.35, as the latest data from the eurozone showed a mixed picture for growth, with Italy falling into recession but Germany avoiding that ignominy.
With metal prices falling again and oil still weak, commodity company shares are among the fallers. Fresnillo is down 16.5p at 709.5p and Anglo American is 25p lower at £13.36.
Tullow Oil has slipped 10.5p to 453.5p while BP has lost 5p to 424.95p.
Among the mid-caps Premier Farnell has fallen 15.7p to 164.2p after the electronic component distributor said full year operating margins would be below previous levels after weaker trading conditions in Asia and Europe.
But Dairy Crest has climbed 7.8p to 489.8p as Credit Suisse raised its recommendation from underperform to neutral and its target price from 390p to 485p after the company’s plan to sell its dairies business. The bank said:
The decision to sell the dairies business to Muller looks very sensible and offers a far more focused business on cheese and spreads. The only question is whether the anti-trust authorities will allow such a concentration in milk processing.
The previous Monopolies and Mergers Commission reports make clear supermarkets can look after themselves, and concentration thus far certainly hasn’t led to milk price inflation for the consumer - quite the opposite. The farmers too seem in favour of the deal. The recent Arla acquisition of Milk Link was allowed to proceed. On balance we think the deal will likely be cleared.
Dairy Crest has had a pretty active M&A history - it has been in-and-out of yoghurt, French spreads, and now milk. This latest deal could, we believe, leave the more focused group itself vulnerable. There are active consolidators out there in both cheese and spreads (Lactalis and Kerry leap to mind).
Based on a combination of likely PE, yield and EBITDA multiples we would expect the new company to trade at round 485p, which we set as our price target. There remains also the possibility that third parties will take a close look at the new enterprise.
