Shares in Aggreko, the equipment hire group, lost a third of their value yesterday after the company said the key summer season in the US was going to be disappointing.
A combination of a sluggish US economy and over-supply of power equipment has made the company's business in North America "very difficult". In April Aggreko said in a trading update that business in that region was showing signs of improvement.
"Since that time a deterioration in the trading environment, combined with an over-supply of equipment in the marketplace, has led to falls in utilisation across its power products, as well as downward pressure on prices across all products," the group said.
The difficult trading environment has been compounded by a lack of work related to power shortages. The California power crisis last year provided a boost to Aggreko, a factor that is absent this summer. The company hires diesel power generators and the shortage of power in California last year and a consequent big hike in electricity prices meant that big energy consumers turned to temporary generators. However, the regulator has now capped prices at a level at which plant equipment companies cannot compete.
Phil Harrower, Aggreko's chief executive, said: "That [power shortage] has gone completely. The regulator has killed the boom in diesel generators by capping prices."
Mr Harrower said US demand in other sectors has proved to be more sluggish than expected, as companies have cut back work or put maintenance projects on hold. He added however that there could still be some improvement in demand in July, August and September and that business in the rest of the world was proving robust.
Aggreko said that, based on current projections, the company's pre-tax profit this year is likely to be about 15 per cent below that of 2002. Analysts immediately cut about £10m off this year's profit forecast to £57m. Aggreko made £67.1m last year.
Karl Green, an analyst at Commerzbank, said: "A massive 60 per cent of profits are typically earned in June/July/August each year, and so Aggreko's US management will be looking for hot and dry weather for the next few weeks."
The US represents about half of group revenues. The company's shares closed down 35 per cent at 157p, having already fallen from 503p over the past 12 months.
Mr Green said: "Our assumption that Aggreko would see a pick-up in the US in H2 [the second half of 2002] now looks increasingly unlikely.... Visibility remains low – about 40 per cent of budgeted annual revenues may or may not materialise."Reuse content