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Aggreko - my latest investment sad-o Buy

By Chris Bailey | Tuesday 6 March 2018


Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Another busy week of UK corporate reporting. I could write about Ashtead (AHT) again but frankly I called it a take profits a quarter ago at twenty quid a share and in early trading today it is below this level again...and the CFO has decided to exit. The latter event all looks very orderly but the as good as it gets feeling lingers. I could also write about my old mucker DS Smith (SMDS).

It has not reported today but the surprise (and rebuffed) bid approach by International Paper of the US for Smurfit Kappa (SKG) has fired up the sector. You know how I feel about completely sad-o but remunerative areas like packaging and it is an area to remain exposed to in my opinion. Today though I am going to write about Aggreko (AGK), the temporary power company, with shares sitting at new five year lows today. I know this because I own a few - as chronicled here way back in August 2016.

Back then I noted that the company 'has been perceived as an emerging market play. Thematically there is little doubt that the potential demand from various excitable developing countries with under pressure electricity supply networks is almost insatiable. The less good news is trying to make them pay vaguely on time'. On the latter point that fine democracy Argentina has been the biggest hassle... However if we believe the august economic forecasters then emerging markets remain early cycle compared to some of their developed peers and add on the biggest exposure of the other side of the business is to the (now recovering) petrochemical, refining and general oil and gas space and the company might be finally in the right spot.

Except in today's full year 2017 results the company noted: 'We expect 2018 Group profit before tax to be in line with last year, on a constant currency basis'.

Well that's just great...and no surprises the shares have slipped as they have. But everything has a price and - as noted above - there is a value and need in what Aggreko does. So £230 million of underlying operating profit putting the stock on a x10 EV/ebit multiple, debt of a little over x1 ebitda, no pension deficit of note, free cash covering the 4%+ dividend...it certainly could be worse. It feels bad today but I am tempted to have a go. You know me and sad-o, low profile areas of the market after all...


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