Aggreko slides as Credit Suisse highlights competition risks

Aggreko slumped on Thursday as Credit Suisse downgraded its stance on the temporary power provider to ‘underperform’ from ‘neutral’ and slashed the price target to 740p from 1,065p amid increasing competition risks.

The bank said the downgrade reflects material cuts to its medium-term earnings per share estimates and expected returns profile of the group.

“Significant FX tailwinds support 2016E and 2017E EPS, masking assumed pricing pressure in the Argentina rebid process, but our 2018E EPS fall by 15% as we factor in the impact of significant fleet growth from the privately-owned global number 2 player.”

CS said that Karpowership (KPS), a subsidiary of Karadeniz Holding, could displace Aggreko as the global number 1.

It noted that KPS expects to end 2016 with a fleet around 60% the size of Aggreko’s Utility Power Solutions fleet and on the bank’s analysis, has a current fleet and fleet under construction equivalent to 128% of AGK’s historically highest return division.

In addition, it pointed out that KPS is pioneering floating liquefied natural gas storage and regasification power plants and water desalination ships.

“Between 2016E and 2018E we now assume a 350 basis points margin erosion in Utility PS (ex-Argentina) due to increased competitive pressures and assume a further 400 basis points between 2018E and 2020E as KPS' fleet launches from the shipyards.”

At 0900 BST, Aggreko shares were down 7% to 874p.