Broker snap: Aggreko focused on efficiency

14th Jun 2010 11:20

An exhaustive visit to nine of Aggreko's sites in Africa has not changed Panmure Gordon's mind about the company's shares, which it thinks are fairly valued by the market, though the broker was impressed with the growth prospects for the temporary power provider over the long term."In addition to underlying improvements in rates, which we believe are now coming through in a number of markets, there remains a fundamental shortage of investment into replacement and new-build power generation which should continue to leave supply requirements for temporary power short of what remains growing demand in a material number of countries," the broker said.Panmure Gordon highlighted a new initiative, called Orange Excellence, by Aggreko, focused on reducing inventory and down time between installations of units. The broker thinks the efficiency improvement scheme could significantly increase utilisation rates and as a result reduce the requirement for capital expenditure.The scheme represents a shift in emphasis on the part of Aggreko's management which Panmure Gordon feels has been more focused on taking advantage of growth opportunities rather than internal efficiencies. "As a result, there remains much to go for in terms of both efficiencies and improving the modular nature of project mobilisation (which can reduce installation time so markedly that set-up costs may now be recovered immediately compared to previous similar projects)," the broker said.The company remains "well placed to win more than its fair share" of contracts for high profile special projects such as the Winter Olympics or the World Cup, but with the shares currently trading on 19.4 times projected 2010 earnings per share the stock is rated no more than a "hold", with "only marginal upside to our 1458p price target".