Aggreko: generation flex

Aggreko, supplier of temporary power, is hardly roaring back to life fast. Yet the one-time stock market darling has certainly reignited a spark, as testified by Wednesday’s upward nudge to full-year profit guidance.

The Glasgow-based company had a phenomenal run lasting years. This went into reverse early last decade. Retrenchment in the energy sector and the US military’s withdrawal from Iraq — then two key sources of business — put a brake on almost 20 years of double-digit annual growth in revenues and profits. Competition grew. Shares fell to one-sixth of their 2012 peak.

Aggreko’s business model is a simple one of buying kit — for example, diesel-powered emergency generators — and renting it out. That relies on high utilisation rates to produce abundant cash. Interim numbers reflect success in some key metrics of managing cash, with net debt/ebitda dropping below one times. Utilisation rates looked less healthy at 55 per cent to 65 per cent.

At first blush, the business outlook provides little cause for cheer. Big events that rely on temporary power have been nixed by the pandemic. Aggreko engines have helped to power virtually every Olympics, bar Rio. It is due to reprise that role in Tokyo’s rescheduled games — but will probably play to far smaller audiences. As for the energy sector, that is grappling with lower oil prices even as it resets to greener alternatives.

Aggreko sees this as an opportunity. It can act as a trailblazer — using friendlier fuels to halve its own diesel consumption by 2030, for example — and fill in for clients as they carry out their own re-engineering. Big picture, the world needs more electrification: an estimated 37TWh worth by 2050, compared with 22TWh in 2020.

Assuming Aggreko can grab some of that, investors should see opportunity. But expectations should be measured. This is no rerun of the glory years: the targeted CAGR of 5 per cent to 10 per cent is more muted. Priced at 30 times this year’s forecast earnings and about 15 times next year’s, shares are not cheap. Even so, they are worth considering as Aggreko revs back up.

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