Jefferies upgrades Aggreko to 'hold', stays put on target price

Jefferies upgraded Aggreko from ‘underperform’ to ‘hold’ but maintained its price target of 750p.

The broker cut its earnings per share estimate for 2017 to 60.15p from 66.71p and for 2018 from 72.47p to 66.27p. The 2017 forecast was 3-5% lower than the consensus.

The third quarter interim management statement (IMS) provided visibility over concerns surrounding the company’s Argentina contract being re-tendered at lower rates and the ‘difficult’ collection of the venezuelan debt, Jefferies said.

The broker’s base case for Argentina called for a reduction from around £75m in earnings before interest tax and amortisation (EBITDA) to £20m and for a £20m write off for Venezuela, resulting in a £212m profit before tax for the full year in 2017.

Jefferies also cautioned that “we still worry about an oversupplied market with flaccid demand, although helpfully we estimate that the key turnkey competitor, APR Energy, has utilisation of 60% potentially improving to 75%.”

Returns look to have been structurally impaired, but the 11-12% post tax return on invested capital (ROIC) is still reasonable and yields an enterprise value/invested capital (EV/IC) ratio of 1.5, analysts Will Kirkness and Kean Marden said in a report sent to clients.

Aggreko’s shares rose 1.05% to 773.50p.