Aggreko shares short circuit after warning on sales and profits

Temporary electricity provider said revenues would fall by £100m next year, sending shares down 20%

Aggreko, the temporary electricity provider that helped power the Olympic Games, said sales would drop next year, sending its shares tumbling 20%.

The company – which provides power for major sporting events, the armed forces and after natural disasters – said revenues would fall by £100m next year. Although Aggreko does not make profit forecasts, chief executive Rupert Soames said it was reasonable to assume profits would also fall next year for the first time in more than 10 years.

Results will be hit when the one-off benefit from the Games falls out of the results, troops pull out of Afghanistan, and with the potential end of contracts to supply electricity in Japan following the tsunami.

On top of that, Aggreko said the rapid growth of emerging economies was weakening. That will hit its fast-growing international power projects (IPP) business, which provides power to emerging markets. IPP is expected to grow by 15% this year but analysts expect that to slow significantly next year.

Soames said: “Either of those we could have met with aplomb, but the two of them in combination … We can manage these two things but we think we are going to be slightly below where we were this year.”

Aggreko had warned investors in October that results would suffer next year following the Games, and that the outlook for emerging markets was weakening. That caused the shares to drop by 12% but they have since crept back up.

Andrew Nussey at Peel Hunt said he was still “slightly surprised” by Monday’s announcement. “Management had indicated in October there were going to be some challenges to be faced, but those challenges have obviously amplified in the last quarter of the year.” He said the company had a reputation for being open. “This is a management team that takes a fairly realistic view on life; they tell it as they see it. Right now the immediate outlook is not looking good.”

He continues to recommend that investors hold the shares but is reviewing his price target of £22.00. “It is still a first-class business. The headwinds it faces have become a bit tougher. I would see this as a road bump rather than anything more serious.”

He said the emerging markets business still had a bright future, even if demand was slackening in the short term. “If you take the view that the world at some point is going to be a slightly happier place, industrial demand is going to grow and that shortage of power is going to exist.”

Aggreko said pre-tax profits would rise 12% to £365m this year, on revenues up 13% at £1.6bn. The shares dropped 460p to £16.65. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

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