One to watch: Powering to profits

Aggreko1,196p +26pScotsman says HOLD

SHAREHOLDERS of Aggreko, primarily a global provider of temporary power and temperature control solutions, have seen the value of their holdings increase significantly over the past year. The share price has climbed from below 450p to its current level, bringing it entry to the FTSE 100. After such a strong performance shareholders will be tempted to take profit; but should they?

The preliminary results announced in March caused analysts to again raise their forecasts, and consensus estimates are for pre-tax profits of 245 million for this year, rising to 264m in 2011. As a result, the prospective price to earnings ratio is nearly 18x, which is relatively rich. Clearly, the market is expecting Aggreko to continue to grow strongly. Uncertainty does exist in that major contracts could be lost, particularly with the military, and, with significant exposure to the dollar, figures have benefited from sterling's weakness.

The international power projects division has been the main cause of the market's excitement, with a series of contract wins, including the World Cup. Revenue and profits are increasing rapidly, but Aggreko management has warned that, for a number of reasons, the margins at this division are unlikely to be maintained at the current level.

The local business division has fared less well during the recession as its revenues are much more sensitive to changes in GDP. Despite this, it is still a highly profitable business with an operating margin of 18 per cent and performance should improve as economies recover.

Where a relatively large holding exists, by all means take some profit, but it is worth retaining some exposure to the long-term growth story.

The value of your investments may fall and you may get back less than you invested. This does not constitute investment advice and you should take professional advice regarding the suitability of this stock for your portfolio.

WPP

644p +4p

Broker says BUY

GIASONE Salati, analyst at Execution Noble, said: "Advertising agencies represent the cheapest way to gain exposure to cyclical media and emerging markets, and they currently trade at the bottom of the long term range."

Noble raised its target price on WPP to 815p and retained its "buy" recommendation.

Babcock International

560p +27.5p

Broker says BUY

NUMIS has raised its target price on Babcock to 840p following the agreed deal to buy VT Group.

The broker said: "The shares are being held back by fears Babcock may overpay for VT and over the defence spending cuts.

"These fears look vastly overdone. The shares are significantly undervalued."