Aggreko runs out of steam as City broker slashes outlook given ‘significant concerns’

Peel Hunt thinks the “fragile” global economy could knock demand for Aggreko’s generators while growing competition and a troubled utility business add to their concerns

aggreko generator and worker
Aggreko supplies diesel generators and heaters to companies around the world

Aggreko PLC (LON:AGK) was one of the top fallers on the FTSE 250 after a City brokerage slashed its outlook for the temporary power supplier.

Peel Hunt said it “rates the Aggreko management team highly” but can’t ignore the fact that the business “continues to face a range of external challenges”.

As a result, it has downgraded the group to ‘reduce’ from ‘hold’ while it has also cut its price target to 700p (from 800p previously). It is now one of Peel Hunt’s ‘least preferred’ stocks in the sector.

READ: Aggreko wins US$200mln Olympics contract

“Management is performing well across tricky markets,” read a note to clients.

“The Q3 update provided some reassurance that Aggreko remains on track, but the ever-shifting challenges remain significant. We are wary that the fragile global macro-economic backdrop is likely to lead to customer hesitancy and greater off-hire risk.”

“Although self-help will mitigate some earnings pressure and support an improving return on capital employed profile, the pace of ROCE recovery looks to be under increasing external pressure.”

The analysts also have concerns over the utility business which appears to them to be in “structural decline”. Growing competition from generalists also adds further pressure on bosses.

At the end of last year, Aggreko won a US$200mln contract to provide temporary electricity systems at the 2020 Olympics in Tokyo. Peel Hunt said the award was "notable" but was already factored into guidance.

Aggreko shares, which had shown signs of life in recent weeks, dropped 4.5% early Tuesday to sit at 714.4p. Back in August, they were changing hands for almost 900p.

Quick facts: Aggreko

Price: £7.73

Market: LSE
Market Cap: £1.98 billion

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