Questor share tip: Red flags make APR Energy a sell

APR Energy
505½p-41½p
Questor says SELL

APR Energy [LON:APR], the temporary power company, spooked investors yesterday by warning of rising costs and a boardroom reshuffle that combined sent shares almost 8pc lower. Questor thinks the latest round of boardroom changes should be a red flag to any investor

APR Energy, the temporary power company, spooked investors yesterday by warning of rising costs and a boardroom reshuffle that combined sent shares almost 8pc lower. Questor thinks the latest round of boardroom changes should be a red flag to any investor

Laurence Anderson, chief executive, told Questor that increased costs of operating in Libya and Iraq would reduce results this year. He expects earnings before, interest, tax, depreciation and amortisation to be up to 5pc lower, or about $16m, off the full year target of about $321m (£194m).

The warning on earnings came alongside more action in the APR boardroom. Only two months ago, Andrew Martinez the chief financial officer, announced his resignation on June 5. Now Mike Fairey, the non-executive chairman is making for the exit and John Campion, the co-founder and chief executive, will step up to executive chairman.

Laurence Anderson, the co-founder and president of APR, will become chief executive.

The typical customer is a country where growth has outstripped the power grid or a natural disaster has destroyed capacity. APR has units in Indonesia and Senegal, and recently signed its biggest contract to supply war-ravaged Libya with electricity.

The results in the first half were in line with guidance given last month. APR said revenue was up 192pc to $254.2m, giving pre-tax profits of $54.3m during the six months ended June. The fleet size of generators increased by 37pc, to 2,194 megawatts from a year earlier.

The shares may look like they offer value, trading on about 8.7 times earnings and backed by assets, but Questor thinks this is a value trap. Those assets are worth a lot less if they are not on hire, as was the case with about 30pc of the fleet at the end of June.

Questor advised selling APR Energy shares last year (£11.50, October 23, SELL). And nothing if not consistent Questor said APR Energy was "Priced to Fail" about three moneths before that (£10.06, August 29, SELL) We still don’t think there is value here. Sell.