Jefferies upgrades Aggreko to 'buy', nearly doubles target

Things are falling into place for Aggreko, according to Jefferies, whose analysts nearly doubled their target price on the stock.

Given "strong" ongoing momentum in the company's Power Solutions arm, in the broker's opinion the 'swing factors' to keep an eye on were Aggreko's utility business, and the Rental Solutions arm.

Within the former, Jefferies highlighted how so-called 'short-cycle' data - such as on GDP and capital expenditures - was seeing some of its best prints in over half a decade.

So pricing was likely to benefit as supply started "getting soaked up".

To back up its arguments, Jefferies pointed to less capacity under construction at clients such as Karpowership and improved end markets at Caterpillar, Cummins and Wartsila.

As for Rental Solutions, its market was geared to a recovery in the States, with 60% of the business coming from the other side of the Pond.

"We increase fiscal year 2018 earnings per share by 8% driven by stronger margins in Rental Solutions and stronger organic revenue growth in Power Solutions Industrial," Jefferies said.

Worth pointing out, to reach its valuation for the shares Jefferies used an EV/IC multiple of 2.0.

That was ahead on the lower end of the 20-year view for between 1.3 and 5.5 (which the broker said was appropriate given the firm's lower returns profile) but nonetheless ahead of the 1.5 Jefferies had previously used.

All told, Jefferies raised its target price for the shares from 850p to 1250p while upping its recommendation from a 'hold' to a 'buy'.