INVESTORS in Aggreko have added around £180 million to the stock market value of the generator specialist after the company achieved a big increase in first half revenues and underlined confidence in its growth prospects following a tough period.
Glasgow-based Aggreko grew revenues to £857 million in the six months to June 30, from £779m in the same period last time as the company benefited from the recovery in the key oil and gas market.
Read more: Benefits of oil price recovery may be feeding through to wider economy in Scotland
The company achieved £59 million profit before tax beating analysts’ expectations.
Chief executive Chris Weston said the results were encouraging and left Aggreko on track to achieve full year results in line with expectations.
After completing a comprehensive review of expected performance in the medium term, directors are confident that Aggreko is following a strategy that will deliver a big increase in profitability.
“We are confident that the Group can deliver a return on capital employed in the mid-teens in 2020 with potential for further improvement beyond this,” said Mr Weston.
Aggreko achieved 11% return on capital in the first half.
With shares in Aggreko rising around 10% following the results announcement investors appeared to welcome signs the company is overcoming the challenges it has faced in recent years.
Shares in Aggreko hit an eight-and-a-half year low in March when the company posted a second successive drop in annual profits.
Read more: Argentina inflicts yet more woe on Aggreko
The company said then its performance in 2017 had been materially impacted by problems in Argentina stemming from the renegotiation of contracts which were originally signed under better terms in 2008.
Late payments in Venezuela and Africa also weighed on performance.
Aggreko was hit by the fall out from the crude price plunge in 2016. The company said the low oil price impacted a number of markets during the year, particularly North America.
Aggreko supplies generators and power systems used on exploration and production facilities such as oil rigs and in refineries.
The company appears to have been a big beneficiary of the increase in oil and gas market activity triggered by the rise in the crude price since leading exporters agreed in November 2016 to take action to support the market.
Read more: West of Shetland in focus for BP after oil giant quadruples profits
Aggreko said a good performance in the oil and gas market in the US and increased activity in the sector in Northern Europe helped its rental solutions business enjoy a strong first half.
The Power Solutions Utility arm, which supplies kit on a long term basis to power firms, saw underlying revenue fall 15% “due primarily to lower rates and volume in Argentina and off-hires in Zimbabwe, Bangladesh and Japan”.
Aggreko said the division that supplies equipment to industrial firms grew Latin American revenues by 16%, supported by an emergency contract in Argentina. The division also supplied kit used in connection with the Winter Olympics in South Korea.
The company said it has been making progress with plans to increase operating margins and capital efficiency. This will be supported by a £50 million cost reduction programme, weighted towards the Power Solutions Utility arm.
Bank of America Merrill Lynch described the first half results as encouraging.
The consensus of analysts’ forecasts was for Aggreko to achieve £50m pre-tax profit. It made £63m in the first half last year.
Aggreko shares closed up 68.8p at 812p, giving the firm a market capitalisation of around £2billion.
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