Friday, 1 February 2013

Aggreko (AGK) ... first class


I bought some Aggreko (AGK LN, mkt cap £4.3bn) at 1618p/shr. It’s fallen out of favour (34% down from Sept 12 peak) due to a profit warning in December last and then again this week. This week's plunge is seemingly on the back of some spurious speculation in the Daily Mail that more bad news may be on its way on March 7. Given that Aggreko’s management are first class, I doubt they have any intention of disappointing again and reckon they’ve “kitchen sinked” enough already.

As the knife is falling, my short-term timing may not be perfect with this purchase. However, I reckon Aggreko is an excellent business, with fore-mentioned first class management, high barriers to entry, exposure to growth markets in an increasingly energy dependent region, and minimal financial risk. AGK achieves high returns on capital (ROE percentages in mid 30s to low 40s / ROIC in mid 20s), and is lowly geared with net debt of £620m and net debt to EBITDA of c. 1x. Further, I reckon the group is capable of generating enough free cash over the next seven years to buy back up to 40% of its equity at current levels.

And another thing, a company such as General Electric (GE US, mkt cap $234bn), could if it so wished consume AGK at say 2000p/shr with six months of its free cash flow. Hmmmm ......

AGK - share price
Source: Bloomberg
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