Aggreko slumps as Berenberg downgrades to 'sell'

Temporary power provider Aggreko was under the cosh on Monday after Berenberg downgraded the stock to 'sell' from 'hold' and cut the price target to 770p from 800p saying the latest re-rating was unjustified.

Berenberg noted that the stock has re-rated by 12% since mid-August, most likely driven by an expected cyclical upswing in the US as the company benefits from the recovery

"This re-rating is unjustified, in our view, and we think any cyclical recovery in the group’s North America business will be temporary and offset by disappointment elsewhere. In particular, we expect Aggreko to miss expectations in its Power Solutions Utility (Utility) division and we expect return on invested capital to continue to disappoint."

The bank said it reckons consensus is factoring in close to 25% trading profit growth in the utility business, excluding Argentina, in FY 2018, which it said is unrealistic.

It believes Aggreko will struggle to stand still in this division due to the slowdown in order intake year to date, the intensification of competition, which continues to put pressure on pricing, and FX headwinds in the form of US dollar depreciation.

At 0915 BST, the shares were down 5.6% to 886p.

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