Aggreko revenues grow 5 percent yet investors remain unconvinced

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Glasgow-based Aggreko plc – the world’s largest temporary power generation company – has issued an interim management statement in which it reports a 5% rise in underlying revenue in the first quarter of the year. Angus Cockburn, chief financial officer who will take over as interim chief executive when Rupert Soames leaves at the end of this month, said that the company’s American region enjoyed a 11% boost on an underlying basis in the first quarter, Europe, Middle East and Africa (EMEA) were up by 15%, while Asia and Pacific lagged behind with a 21% fall. Mr Cockburn said that although Europe was still lagging behind, UK, Norway, and Germany were showing good signs, while “Russia, which is a big and important market for us, has had a good start. We do a lot of oil and gas and mining work in Siberia.” There was better news from “the Middle East [which] has been good and we have seen quite a bit of volume in Iraq supporting oil and gas and a bit of work up in Kurdistan. Also in Qatar as the infrastructure starts to build ahead of the World Cup in 2022, while Saudi continues to be strong.” Aggreko’s promising results were to a great extent down to the robust North American oil and gas sector. Mr Cockburn acknowledged that “oil and gas is an important sector for us. If you look at the Americas, we have grown strongly again and a lot of that is oil and gas, whether that is the Gulf of Mexico or more importantly shale. [The North American market] has been a very good market for us and one where we are providing [higher margin] gas generation. We have changed that marketplace, innovated and are winning a lot of share there.” First quarter order levels for the power projects division – which provides longer-term power generation – were similar to those of the last quarter of 2013 (209 megawatts), but according to Mr Cockburn, the company is “off to an encouraging start” having already secured 406MW in new contracts. That includes 50MW in Senegal feeding into the local grid, 170MW of short-term work to cover summer peak periods in Saudi Arabia and Oman, plus 120MW of rental equipment being put into Libya. “Libya is a major contract and a country that is very short of power. We see a real opportunity there in the oil and gas sector and the utility sector.” said Mr Cockburn. In Europe, the company is in the latter stages of planning its participation in the Glasgow Commonwealth Games 2014. “We are going to use more than 130 generators, have more than 100 people employed on executing the contract and it is going to be 200 kilometres of cable so it is an enormous amount of distribution.” Nevertheless, things are not all rosy for the Glasgow company. As Questor – the investment advice service of the UK’s Daily Telegraph – has noticed, Aggreko has lost some lucrative contracts; the equipment for the military bases in Afganistan and Iraq, and in Japan following the tsunami of 2011. These long-term contracts are being replaced albeit with shorter-term agreements in Mozambique and Ivory Coast. The bad news for investors is the fact that the power projects division, which has suffered a decline, has in the past been the one responsible for profit growth. Now the profit margins have been falling in the power projects division and an increased competition for the new contracts might mean that the returns may be lower. It seems that despite Aggreko’s CFO’s upbeat outlook, the investors remain unconvinced. The Daily Telegraph’s advice to its readers is unequivocal – “sell”.

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