Credit Suisse sharply lowers price target for Aggreko

4th Nov 2014 12:52

Additions by Aggreko to its capacity for distributed generation (DG) could see the company's addressable market for Power Projects shrink at a compound annual growth rate (CAGR) of 3% to 2020.That is far less than the 14% CAGR forecast by Aggreko, which for analysts at Credit Suisse should be the 'bull case' scenario. Hence, the Swiss broker sees "significant" downside risks over the medium-term.The main reason for that is that "DG additions will account for approximately 40% of global power capacity additions in 2012-2020. This does not seem to have been factored into Aggreko's strategic analysis of future centralised generation, transmission & distribution capacity.""DG expansion presents some opportunities to the Local division, but we think it is net negative for the group's equity valuation," analyst Karl Green adds.The cyclical 'drivers' for Power Projects are still weak, with slower real GDP growth and deteriorating fiscal balances limiting demand for expensive supplementary power rental.Credit Suisse cut its price target on Aggreko to 1,240p from 1,471p while reiterating its 'underperform' recommendation.