Aggreko plc Reports Strong Underlying Sales Growth

Shares in temporary power and temperature control business Aggreko (LSE: AGK) were up as much as 4% this morning after the company reported solid Q3 results.

While currency movements led to a 3% fall in revenue for the period, the company reported 6% growth at constant exchange rates (CER).   

Aggreko continued to make strong progress in its Local business, which supplies generators and temperature control to small businesses and events, with sales at CER up 11% on the same period last year. The department experienced a 9% drop in sales at CER across the Asia Pacific region as a result of the slowdown in the Australian mining sector and pricing pressure in Indonesia, but this was more than offset by strong growth across other regions.

Aggreko also completed the acquisition of Triangle Generators Limited, a UK power rental business with £3m of revenues, catering to customers throughout Merseyside, Cheshire and North Wales.

The Power Projects business, which fulfils much larger contracts and often deploys temporary power plants, grew 10% in the third quarter at CER. Order intake increased to 697MegaWatts (MW) from 530MW over the same period last year after the department won a 104MW contract in Panama and smaller contracts in Benin, Gabon and Guinea Bissau. The company reported good progress towards multi-year extensions on contracts in the Cote D’Ivoire and Argentina, while Japan extended their 150MW diesel contract for a further three months.

Aggreko’s state-of-the-art fleet drives its competitive advantage, and so it’s no surprise the company expects to spend £235m expanding it in 2014 and a further £140m in the first half of next year.

Management expect underlying trading profit for the full year to be similar to 2013 where the company booked a profit of £238m. This leaves the shares trading on a forward PE of 16, which might seem expensive for a company predicting no profit growth for the year. However, investors seem to be ignoring the currency impact and giving the company credit for strong underlying growth. Demand for temporary power is set to explode over the next decade, and as the dominant player in the sector Aggreko expects to take a large chunk of that growth.

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Zach Coffell has no position in any shares mentioned. The Motley Fool UK owns shares of Aggreko. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.