Aggreko has shown classic growth company characteristics, and has more to come this year.
Nobody who has been watching the Aggreko (LSE: AGK) share price can have failed to notice its rapid rise -- in fact, anyone who was fortunate enough to have bought at last year's low point will be sitting on a nice four-bagger now, even though the price has fallen back a little of late.
So what has a company that hires generators, heaters, chillers and dehumidifiers been doing so well to deserve such a good run? Well, rather conventionally, it's been steadily growing its profits, year-on-year, in true growth-company style. Turnover has grown from £418m in 2005 to £1.02bn in 2009, with pre-tax profit growing from £55.3m to £234m in the same period.
This year on track
And Wednesday's interim results confirmed that 2010 growth estimates are on track. In fact, chairman Philip Rogerson said "We believe that we will make further good progress in the second half and that the outcome for the year as a whole will be slightly better than our previous expectations".
What we saw was revenue for the first half of 2010 grow by nearly 17% from the same period last year, to £584m. That led to pre-tax profit of £126m, up 19%, and basic earnings per share of 32.5p, a rise of 21%.
Those impressive figures are partly due to the company winning contracts to provide power to a number of entertainment and sports events, but business in Asia and Latin America is booming too, helping boost Aggreko's order book by 49% over last year.
Going ex-growth?
The company, which has no debt, also announced a 50% increase in its interim dividend, to 6.55p, which is interesting as it may herald the start of a transition from rapid growth to sustainable dividend income, though even if the full year dividend gets a 50% boost, on today's share price that will still only be a yield of 1%. The P/E based on 2010's estimated full-year profits is around 20 times.
Forecasts for 2011 are for much more modest growth than in previous years, with EPS growth of less than 5% expected. The full year PEG for 2010 is still around 0.8, but that would balloon to around 4 next year if current forecasts are accurate, so we could be seeing the tail-off in a classic growth phase, which might cause some investors to abandon ship.
It will be an interesting one to watch, albeit one that I think is too highly priced right now.
More from Alan Oscroft:
> For two weeks in September we will be opening the doors of our Champion Shares PRO newsletter service. In order to keep our exclusivity, only a select number of our readership will be able to join us. This is your chance to guarantee your place! Click here to join the priority waiting list.
