Temporary power kit provider Aggreko (AGK) raised expectations for full year earnings in an surprise update on Tuesday that spelled out the recent rebound in demand.
The company said it had seen a widespread recovery through its third quarter to 30 of September and it now expects underlying pre-tax profits to be ‘at the upper end’ of its previous guidance.
Profits of between £80 million and £100 million had been steered.
The announcement built on a storming recent share price run that had catapulted the stock 60% higher since late September. The shares rose another 4%-odd on Tuesday, hitting 590p highs not seen since before the coronavirus pandemic.
COVID-19 SCARS
Figures for the nine-months to 30 September showed the inevitable scars of the pandemic. Revenues excluding currency effects and pass-through fuel costs fell 14%, with rental services under-performing industrial power solutions and utility power solutions.
There was a slight improvement in the rental business in the third quarter in North America. Continental Europe and Northern Europe also showed a mild improvement in trading in the third quarter, although both regions still experienced close to a 20% drop in revenues from last year’s levels.
Industrial power solutions registered a 12% drop in nine-month revenues, with falls in Asia and the Middle East only partially offset by a strong showing in Africa where mining projects helped lift demand.
Utility power solutions held up relatively better, posting a 6% drop in revenue over nine months due to a 9% reduction in megawatts on hire as new projects were delayed by the pandemic.
CASH AND OLYMPICS PLUSES
Despite the drop in group revenues, strong cash collection and better working capital due to lower investment meant operating free cash flow reached £358 million after a £257 million reduction in net debt.
While the 2021 outlook is still uncertain, ‘trading trends indicate increases in activity levels for our more transactional rental business and an improved outlook on the timing of our larger project mobilisations within power solutions’ according to today’s update.
Based on the assumption of a gradual global economic recovery, stable oil prices and the Tokyo Olympics going ahead as planned - at an increased contract value, it should be noted - management expect pre-tax earnings in the range of £170 million to £190 million, against a consensus estimate of £166 million according to S&P Global.
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