The economic downturn is shifting power generation capacity from one-off projects in rich countries to long-term supply in the developing world, according to Aggreko, the generator rental group.
The company, which provides half of Uganda’s electricity and last week won a contract to supply close to 15 per cent of Kenya’s generation needs, said it was moving equipment from its local power to its international projects division to meet demand from the developing world.
Rupert Soames, chief executive, said Aggreko was having to trim profit margins to maintain market share in the local business, after enjoying a particularly strong period last year thanks to the Beijing Olympics and storms in North America.
Operating margins in the six months to June 30 fell from 16.5 per cent to 13.8 per cent in the division.
“We are pretty determined to hold on to the customers we’ve got because this [downturn] ain’t going to last for ever,” he said. “We’ve got the margins and the balance sheet to sit this one out, so it’s been expensive but we’ll end up gaining market share.”
But profits on the international projects side, which concentrates on long-term electricity generation for developing countries, were likely to overtake those from local power by the year end, although profit margins had “definitely peaked” after climbing from 20.4 per cent to 29.9 per cent.
Overall pre-tax profits rose from £67.9m to £105.7m while earnings per share climbed from 16.88p to 26.69p. The interim dividend is raised 15 per cent from 3.8p to 4.37p. The shares closed strongly, rising 56p to 670p.
● FT Comment
Mr Soames is honest about the challenges ahead for Aggreko – some lumpiness in the local power business against strong comparators last year, and a decline in the international power order book from a peak of 22,000MW last June to 18,000MW now. The next six months, he says, will be “more difficult”, but there has been no downgrade from the group’s long-held pledge to keep profits level from last year, after stripping out currency effects. Add them back in and analysts expect pre-tax profit of £212m for the year, compared with £190m last time. The long-term argument for the international power business – that developing countries lack the capacity and investment to meet their energy needs – remains strong and, with a forward price/earnings ratio of 12.8, Aggreko looks good value against the UK’s other equipment hire groups on 15.9 and better value than Middle Eastern and African utilities, on 17.9.
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