BMI View: A new contract award for APR Energy in Libya adds to a strong start to 2013 for the emergency power provider. For Libya, much needed power supply will support reconstruction , which w e believe will only really take place from 2013. For APR, the contract continues a trend of eking out market share from competitor Aggreko.
Broad scale reconstruction projects have yet to take off in Libya; however, repairing the electricity network has been a priority. Work started on the grid in September 2011, and as of Q312, over 70% of the network had been repaired. However, supply is also an issue; the company has insufficient capacity to meet demand (with an estimated 1,000MW capacity shortfall). This situation is being exacerbated by significant growth in new demand and stalled projects for new capacity, which remain in limbo following the 2011 civil war.
In order for broader reconstruction and economic normalisation to take place, a reliable electricity supply is key. Indeed, Iraq, by comparison, has struggled to secure sufficient electricity in the ten years since the US invasion, and this has delayed economic development and resulted in significant popular discontent. Acquiring temporary power supply is therefore an important step in the longer-term redevelopment of the country, especially ahead of the summer months when demand peaks.
The agreement will see APR Energy provide a full turnkey 250MW power plant as an interim solution to Libya's power shortages whilst new infrastructure is under construction. The power plant will have mobile turbines and dual fuel capability, allowing it to run on either gas or diesel, enabling greater flexibility to meet demand.
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The contract to provide emergency power to Libya is the largest in APR Energy 's history, and one of the biggest interim power agreements ever signed. The contract is the latest in a string of awards for the company, which saw its order backlog increase 80% over 2012 to 11,592MW. In 2013 , already the company was awarded a combined 101MW in new contracts and extensions from Guatemala, Indonesia, Senegal and Gabon. Recent contract awards have contributed to a sustained break above trendline resistance in the company's share price, with the stock price soaring 10.25% in one day on news of the Libya n award. These projects should boost earnings in the second half of 2013 ; however, worries are present over first- half results following delays in contract awards in late 2012. Indeed, this trend resulted in APR issuing a profit warning in October 20 12. However, preliminary 2012 results show a relatively strong picture, with a 10% increase in profit for the year.
These projects, combined with others awarded over 2012, illustrate APR's growing market share in the sector , following its acquisition by UK based Horizon in 2011 in a deal worth US$855mn. The Florida - based company was listed on the London Stock Exchange in 2011 ; although its share price has suffered due to market conditions and delays in released in 2011 results. However, the broader market is attractive for temporary power providers. Growing investment into the resource industry globally, and in emerging markets in particular, is placing heavy burdens on national electricity grids, which are typically insufficient to begin with. This is creating opportunities for companies like APR and Aggreko to provide contracts for interim power whilst expensive power plant projects are financed and built.