The last thing they do is turn the lights out

22nd Dec '08 by Stocktaculous

3 comments 2349 reads

Glasgow-based and the leading global supplier of back-up power generators, manufactured in Dumbarton.
Strong trading statement last week predicting full-year profits before tax of £190m, around £2m above the market's consensus and 53% ahead of 2007, as continued storm damage in the US and demand for rapid electricity supply in emerging markets buoyed demand.
Strong performance from its international power projects business – which provides a quick alternative to power stations for emerging nations – is expected to offset weakness in its European and North American business, leading to an increase in profits in the first half of 2009 at least.
The company said it expected net debt at December 31 to be around £340m, against committed facilities of £506m. £157m of these facilities are due to be refinanced in September 2009 but Aggreko is confident that the refinancing would be completed in the first half of 2009, having added £60m to its facilities in recent months

“There are a number of benefits to our business model, one of which is that everybody needs power. Even in the face of terrible economic uncertainties the last thing they do is turn the lights out.”

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Stocktaculous

22nd Dec '08

It was the most downbeat assessment from Aggreko in several years but still expected 2008 results were ahead of market expectations!

On the negative side, Collins issued a sell note (which I personally discount), saying:

"Management's pre-close update indicated 2008 profit before tax of circa £190m. The consensus is forecasting an almost identical pretax profit for 2009, a figure that we regard as unrealistic. While Aggreko is a big dollar beneficiary, it has also benefited from some significant one-off events in 2008. US hurricanes ($32m) and the Beijing Olympics ($41m) accounted for over $70m of revenues and around $35m of operating profit in 2008 and will not be repeated. Some 60% of Aggreko's profits come from the Local businesses, in which there is less than one week's visibility. Aggreko is a highly operationally geared business. Management estimates that around 60% of the cost base is fixed. A 2% fall in sales produces a 4-5% fall in profits. Adjusting for the current foreign exchange rates, the consensus is discounting just a 4% fall in sales in 2009, far too optimistic we think."

Murakami

24th Dec '08

Hmmm... I personally buy the bear case. Stripping out the hurricane effect, North America and Europe have basically been flat for a while and it has been supported by emerging market growth (and China in particular). If we see a global economic recession next year (which seems highly likely to me), then demand for this business will suffer. Given the operational gearing, it could be a tough time. It's a nice business that has done well, but it's not that defensive - demand for power is cyclical in many economies.

A little out of date but some good bull arguments in this article, particularly the point on the structural demand for fixed power in the developing world: http://www.telegraph.co.uk/finance/markets/questor/3212176/Aggreko---Questor-says-buy.html

The structural shortage of fixed power in many parts of the world, while being slowly addressed, will ensure continued strong demand in the future. So long as the local populace continues rioting on the streets as a result of blackouts, Aggreko will see enquiry levels rise.

The last thing they do is turn the lights out

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Stocktaculous

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