Temporary power and temperature control group Aggreko got an Olympics revenue boost in the third quarter, but guidance for the full year was mixed, with some parts of the business performing better and worse than expectations and currency movements likely to have a negative impact on the bottom line.
Trading since July 1st to date has been strong, the firm said, with reported revenues in the third quarter up 22%. On an underlying basis, which exclude revenue rom major one-off events (such as the Asian Games in 2011 and the London Olympics in 2012), sales grew by 13%.
International Power Projects (IPP) revenues were up 15% excluding pass-through fuel and currency movements, though margins in the quarter were lower than the same period last year due to the unusually high mobilisation costs relating to the Mozambique contract.
"We also increased further our bad debt provision in the quarter, which, set against a large release in the third quarter of 2011 depressed margins relative to the prior year," Aggreko said.
Meanwhile, the Local business performed better than anticipated with reported revenues up 32% (+11% underlying) and margins showing improvement.
Aggreko said that the Local division will likely have a stronger-than-expected performance in the second half, but second-half revenue growth in IPP will be lower than it had hoped at the time of the interim results. What's more, IPP margins and returns for the year will be lower than 2011.
Group revenue totalled £734m in the first half of 2012, up 15% year-on-year. The Local business accounted for £404m of this, while IPP accounted for £330m.
"Overall, trading continues to run broadly in line with our expectations. Despite the increase in bad debt provisions during the year and unusually high mobilisation costs, we expect that group margins for the year as a whole, both on a reported and underlying basis, will be at similar levels to last year," the firm said.
"Since our last trading update in early August, however, exchange rates
have moved against us, and we have also increased our bad debt provisions; we expect that, between them, these two factors will impact our anticipated profits for the year by about 2.5%."
Aggreko also mentioned that the rate of fleet capital expenditure (expected to be £415m in the current full year) in the first half of 2013 will be lower than 2012 "given the need to absorb into the wider business the fleet we built in the first half for the London Olympics, and being mindful also of a weakening macro-economic outlook in many developing economies."
Investec, Seymour Pierce and Jefferies have all maintained their 'buy' ratings on the stock.
Analysts at Charles Stanley on the other hand were of the following opinion: "Investors have become accustomed to upgrades with Aggreko announcements but today's IMS for the third quarter has only delivered a 'robust' performance. There are likely to be modest downgrades to 2012 estimates and there appears to be a slowdown in the potential rate of growth.
"In particular, bad debts and adverse movements in exchange rates will impact profitability. Given that the shares
are highly rated and need to deliver strong growth, we are downgrading our recommendation to 'reduce'."