24th Jul 2015 11:47
LONDON (Alliance News) - Aggreko PLC Friday said it now expects its 2015 interim and full year results to fall short of current market expectations, citing a further slowdown in its North American oil and gas related business and "ongoing security challenges" in Yemen, sending its shares crashing.
The temporary power provider, which was relegated from the FTSE 100 to the FTSE 250 in June, has seen its share price hit hard this year as the weak world oil price has caused oil and gas producers to cut back on capital expenditure, harming any company that provides services to the sector.
Shares in Aggreko were down 12% at midday to 1,260.00 pence, the second worst performer in the mid-cap index after Lonmin PLC.
The company said it now expects to post a full-year pretax profit for 2015 of between GBP250 million and GBP270 million at current exchange rates. That compares to previous City consensus estimates of GBP292.4 million, according to Morningstar.
Aggreko had previously said it expects its 2015 trading profit excluding currency movements and pass-through fuel to be broadly in line with 2014. Aggreko posted a pretax profit of GBP289 million for 2014, down from GBP333 million in 2013.
The company said that trading terms for gas contract extensions in Bangladesh are likely to be less favourable than its earlier expectations. Whilst it will seek to mitigate the hit from this by reducing costs, it expects this to have a net adverse effect on its profit for 2015 and 2016.
Additionally, Aggreko said ongoing security challenges in Yemen have hampered its ability to operate at full capacity, and it remains "concerned about the impact for the remainder of the year".
Yemen is in the midst of an effective civil war, primarily involving forces loyal to president Abdrabbuh Mansour Hadi and those allied to Zaidi Shia rebels, known at Houthis. A rebel insurgency in February forced Hadi to flee the country. Since then, a coalition led by Saudi Arabia has intervened with a bombing campaign to stop the Houthi advance.
Though not a major oil producer, Yemen is strategically important as it lies at the heart of many key energy routes in the Middle East, and the turmoil which has engulfed the country has had an impact on an already volatile oil and gas market.
Back in May, Aggreko warned it had started to see a fall in volumes and pricing in its shale oil business, and said Friday that since then it has seen a further slowdown in North America, with volumes in shale business continuing to decline. It has also begun to see a hit to its offshore oil and gas business in the Gulf of Mexico.
But in its May trading update, commenting on its first-quarter trading, Aggreko had retained its guidance for 2015, though it did caution it would not be able to predict the impact of lower oil prices on its markets. The profit warning on Friday suggests those that impact has worsened since the first quarter.
Aggreko will announce first-half results August 6, with Chief Executive Chris Weston set to outline the measures the company intends to take in order to mitigate the issues it faces.
In response to the update, Investec put its already below-consensus estimates under review and noted that at the low-end of Aggreko's guidance, the company would be trading at around 20 times 2015 earnings. In the broker's view, it would be prudent to assume little growth in 2016 too, which may lead to sharper revisions to those forecasts than for 2015.
The broker said the statement from Aggreko confirms that a downward re-rating of its shares is necessary, backing its previous view that the company was entering a period of lower earnings growth and, due to political and macro uncertainty in key markets, had a bleak medium-term growth outlook.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews and Sam Unsted; [email protected]; @SamUAtAlliance
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