Aggreko Plc (AGK), the world’s largest provider of mobile power supplies, slumped the most in more than 10 years, wiping more than 1.2 billion pounds ($2 billion) off its market value, after saying earnings will be “slightly lower” next year because of slowing demand in emerging markets.
The shares plunged 22 percent to 1,664 pence, the lowest closing price since October last year. The stock fell for an eighth consecutive day and was the worst performer in the FTSE All-Share Index. (ASX) The shares have fallen 18 percent this year, the sixth-worst performance in the benchmark FTSE 100 Index.
“Utilities are deferring orders because they think they can muddle through,” Chief Executive Officer Rupert Soames said in a telephone interview. “We saw this pattern in 2008 when we had a sharp drop-off in orders that lasted for four quarters.”
The new Chinese leadership may accept a reduced pace of growth in the world’s second-largest economy in exchange for a more sustainable model, according to a report yesterday by the state-run Xinhua News agency. Brazil’s economy grew 0.6 percent in the third quarter, half as fast as forecast.
Slowing demand in countries like China, Brazil and South Africa has a knock-on effect in other emerging markets, Soames said. “We are talking about economies growing 4 percent rather than 6 percent or 7 percent,” he said. “It feels very different.”
Expected growth in Aggreko’s International Power Projects and Local Business units next year probably won’t offset the anticipated loss of about 100 million pounds of revenue, as a result of the one-time effect of the London Olympics, the withdrawal of more U.S. troops from Afghanistan and the anticipated ending of contracts in Japan, the Glasgow, Scotland- based company said in a statement.
“The outlook for 2013 is much more adverse than we had expected,” John Lawson, an analyst at Investec Plc, said in a note to investors.
Aggreko raised its provisions for bad debts to $85 million after making progress in the second half in collecting overdue payments, it said in the statement. “It was not enough to convince us to start releasing any provisions, although it is above historic levels,” Soames said.
Consensus estimates for 2013 pretax profit are likely to fall by 12 percent to 14 percent, Toby Reeks, an analyst at Bank of America Merrill Lynch, said in a note to clients.
Investec’s Lawson cut his recommendation on the stock to hold from buy and put his 12-month price target under review.
David Brockton, an analyst at Espirito Santo, put his buy rating, earnings estimates and share-price prediction under review after saying the company’s report today implied his 2013 earnings estimates were at least 10 percent too high.
The company remains a premium stock, Paul Jones, an analyst at Panmure Gordon with a hold rating, said in a note to clients. He lowered his price target to 1,935 pence and cut his 2013 pretax profit estimate to 340 million pounds from 379.3 million pounds.
Analysts cut their estimates in October after Aggreko said it expected 2012 profit to be 2.5 percent less than forecast. The company said today it is on track to meet its forecast of profit before taxes and amortization of 365 million pounds.
About 5.47 million Aggreko shares were traded, more than eight times the three-month daily average.
To contact the reporter on this story: Peter Woodifield in Edinburgh at firstname.lastname@example.org.
To contact the editor responsible for this story: Douglas Lytle at email@example.com