Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES EV/EBIT EV/EBITDA P/E Price Consensus EPS EPS (adj) attractive inarecovery environment. the event of no takeover, I continue to view Aggreko’s current hold valuation as a moderately assign I share, recommendation per to Aggreko. That said, pence for investors looking over the 880 longer-term, in of price offer with indicative talks, the takeover around ceiling these a from volatility short-term to subject be could investors that given However, opportunities. growth associated and recovery synchronised a opinion, of my prospect the in pricing in be to appear it does valuation, Nor stretched. appear not Aggreko’s still does pandemic, the from stemming uncertainties Conclusion: the takeoveroffer. of advantage take and sell to need a see not do I credible, is offer takeover the that premise the on Hence, valuation. and forecasts the my underpins in-turnsupporting that thesis recovery strategy, presented inmanagement’s belief their re-affirm would it offer, the reject board the should that feel I said, That consortium. the with talks in developments on contingent largely is pricing near-term that acknowledge I price. share in jump subsequent the and capital TDR by led consortium a from 5th, offer: Takeover flags thatwouldsuggestmaterialrisksrelatingtofleetdevelopment and/orM&A. red no find I transition. energy the amid profiles demand customer changing from stemming risks executional to relates element critical Another sectors. events and Tied to this is the stabilisation and subsequent gradual recovery in both the oil & gas forecasts. my underpinning factor critical a is 2021/22 in economies of re-opening the to relating trajectory the above, mentioned already As Key near-termdrivers: Source: AnalystestimatesandBloombergconsensusasof08/02/2021 Key valuationmetrics: the between place take forecast period. to high-teens the to margins in reversion a assume also I 2020-2025. between 8% of CAGR a with guidance, medium-term management’s of continue conditions economic as normalise, 2022 specifically the events business. My top-line forecasts in are in the mid-point acceleration further and 2021 for fuel, pass-through of net revenue, underlying in growth 8.2% a estimates case base My to the effectiveness of global vaccination roll-outs and government lockdown policies. gradual easing of COVID-19lockdownrestrictionsthroughout 2021, which issubject a on predicated course of is This 2021. in place take to performance underlying in Forecasts: contracts. events one-off large of of types these for moat economic an as act to continues scale Aggreko’s believe and kicker added the like I unpredictable, though infrastructure. Additionally, for power mechanism legacy their bridging from a away transitioning as sectors act and to economies engaged are providers growth power of temporary rates as above-market for scope Providing sectors. and regions certain in dislocations magnify to potential the has de-carbonisation, as such themes, various Under-appreciated positioning amid the energy transition: opportunities inarecoveryenvironment valuation doesnotreflectthefullextentofgrowth Even afterthetakeoverofferre-pricing,IbelieveAggreko’s in TemporaryPowerSolutions A CaseToContinueHoldingtheMarketLeader Aggreko Plc Following management’s Nov-20 strategic update, I forecast a recovery a forecast I update, strategic Nov-20 management’s Following Following the takeover offer re-pricing and near-term economic near-term and re-pricing offer takeover the Following Following the announcement of a potential takeover, on February on takeover, potential a of announcement the Following 732.6 2018 11.2 14.9 N/A 4.8 49 832.6 2019 16.5 N/A 9.6 4.4 51 2020E 851.0 20.2 34.1 6.3 22 25 The acceleration of acceleration The 2021E 851.0 13.4 19.8 5.5 45 43 2022E 851.0 13.6 9.7 4.7 44 62 Industrials |EuropeanBusinessServices Equity Research Current BVPs(GBp) 2020E EPS(Adj,GBp) Dividend Yield 100D AvgDailyVolume Free Float(%) Shares Outstanding(m) Market Cap(mGBP) Enterprise Value(mGBP) Tickers Potential Upside/Downside Price (asof08/02/2021) Stock Rating [email protected] Victor Pancic Contacts: 52 WeekRange Price Performance Source: Bloomberg,08/02/2021 Price Target Industry View 08 February2021 Source: Bloomberg,08/02/2021 GBp (pence) per share 1,000 1,200 1,400 1,600 1,800 2,000 200 400 600 800 Dec/14 0 Dec/15 Dec/16 Dec/17 Dec/18 AGK.LN /AGGK.L Exchange-LSE GBp 286-888 Dec/19 GBp 964 Positive GBp 851 484,998 +13.2% Hold 0.59% 2,180 2,679 Dec/20 99% 467 256 25 Equity Research | Aggreko Plc

Contents

Executive Summary 3 Aggreko ­­­— Company Profile 4 Management 11 Temporary Power Market Overview 17 Aggreko ­­­— Revenue 26 Aggreko ­­­— Margins 32 Aggreko ­­­— Cash Flow 37 Aggreko ­­­— Balance Sheet 44 Trading Update 46 Valuation 47 Financials 54 Important Information 58 Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 2 Equity Research | Aggreko Plc

Executive Summary While Aggreko’s valuation has re-priced significantly following the takeover offer (announced 05/02/21) and certainly looks expensive relative to historical norms on a pandemic-hit earnings denominator. I believe a number of visible factors suggest the opposite is true and that Aggreko is actually quite reasonably priced. In fact, in my view, valuations still appear moderately attractive in recovery scenario.

1) Enduring structural growth in the temporary power market: Structural growth in temporary power is supported by the global growth in energy demands from urbanisation and digitisation of trends. Prominent opportunities exist in regions with less developed power infrastructure, such as Africa, where energy consumption per capita is still well below that of developed regions. In developed markets, the increased fragmentation of power infrastructure, as renewable energy sources are integrated into national power grids, supports demand for modular yet reliable back-up power solutions. Furthermore, the acceleration of climate change objectives creates an opportunity to act as a bridging mechanism to customers as they transition over to lower carbon emitting power infrastructure. In my view, the energy transition exacerbates the future opportunity for temporary power in developing markets due to the fact that de-carbonisation will not be binary and developing markets are generally more reliant on fossil fuel infrastructure.

2) Aggreko’s post-pandemic recovery and subsequent growth opportunity is underestimated, in my view: Following the takeover offer re-pricing and economic uncertainties surrounding the trajectory of the pandemic, Aggreko’s valuation, in my opinion, does still not appear stretched. Nor does it appear to be fully pricing in the prospect of a synchronised recovery and associated growth opportunities. This is supported by my upside/downside scenarios that suggest a slight asymmetry to the upside, from current levels, which I feel is justified from Aggreko’s operational leverage and pandemic-induced streamlining initiatives.

3) Aggreko is a market leader: I believe that Aggreko has structural advantages from being a market leader with global scale. The company’s strong track-record of executing on complex power solutions ties in well with the increasing prominence of data-centres, which require an array of solutions ranging from secure power solutions to temperature control and load testing. Data centres are expected consume up around one fifth of global energy by 2040 according to the IMF, up from around 3% in 2017 as estimated by a Centrica report. As the temporary power market evolves, I believe that a solid track-record in deploying complex hybrid and renewable technologies at scale will play a vital role in gaining customer acceptance. Especially when you consider that security of supply is a key pillar of the temporary power business . It is my view that as a market leader, Aggreko is better positioned than smaller, local peers when it comes to gaining traction in newer, relatively un-proven technologies.

4) Strong management: As customer demand profiles evolve with the energy transition, temporary power providers face execution risk with regards to their fleet development, M&A and R&D spending. I believe in management’s strategic vision for the company and following the successful acquisition and integration of Younicos into the fleet, I feel comfortable with management’s ability to execute in order to reach their medium-term goals. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 3 Equity Research | Aggreko Plc

Aggreko ­­­— Company Profile

Background In 1962 Aggreko was founded by Luc Koopmans in the Netherlands, with energy from the first diesel generators being used to provide heat for greenhouse crops. A timely expansion was made into the UK amid the 1973 oil crisis. In the 1970s, close to 50% of the UK’s total energy consumption was reliant on coal as a fuel source. Although the UK remained relatively unscathed from oil embargoes, imposed by oil- producing Arabic nations targeting countries perceived to be supporting the Yom- Kippur War. Coal miner strikes across the UK, driven by the government’s reluctance to meet workers wage demands on the back of food inflation pressures, led to severe disruptions in the UK’s energy supply and resulted in the infamous implementation of the ‘three-day-week’. Ultimately ending in the fall of the conservative party in 1974. After gaining traction in the UK and expanding operations, notably supporting North Sea oil operations in Norway, Aggreko relocated its headquarters to Glasgow in 1974 where it remains today. Aggreko was subsequently acquired by the Salvesen Group in 1984 and entered the U.S. market in 1986 through the acquisition of Louisiana based Electric Rental Systems. This was followed by a series of acquisitions, such as US based Mobile Air and Pierce Industrial in 1987, expanding the rental fleet to temperature control equipment. Geographic development into Asia was achieved in 1989 through the acquisition of Yeow Kong Electrical in Singapore. Part of Aggreko’s success was attributable to their internal research and development of generators, enabling the company to better adapt to customer needs. For example, Aggreko was one of the first companies in the space beginning to sound-proof their generators. The company acquired Generator Rentals Pty, gaining direct access to Australia in 1990 and in 1991 acquired UK based BDD, adding industrial drying equipment to the rental fleet. After a failed attempt to enter the UK lighting systems rental market, via the acquisition of Light & Sound Design, Aggreko sold off the operation in 1995. This coincided with the launching of Aggreko’s first oil-free air compressors and was followed, in 1996, by the company’s GreenPower series of environmentally friendly power generators used at the Olympic games in Atlanta. By the time of the failed takeover attempt on Salvesen in 1997, by a rival logistics group Hays Plc, Aggreko had morphed into a full-fledged utility service provider and was subsequently spun off and listed on the LSE in 1997. From here the company continued to build on its position as a worldwide leader of rental power equipment and in 1998, acquired Tower Tech, a US based provider of modular cooling towers and equipment for, among others, the chemicals, nuclear power and pharmaceutical industries. A key sales agent during the company’s expansion into the US in the late 80s, L&S Industries Inc., based in Baltimore, Maryland, was acquired in 1999, aiding the growth of US service operations and in 2000 further expansions to oil-free air compressors was made via the acquisition of Ingersoll-Rand’s fleet. 2002 saw the acquisition of Compresores Esteve S.A. expanding Spanish operations, however after a deteriorating growth in the two segments, International Power Projects (IPP) and Local Business, a strategic review was announced in March 2004 aimed to re-invigorate growth via regional expansion in IPP and centralising various functions of local business. 2005 saw the acquisition of the temperature control rental fleet of Prime Energy in June 2005 further strengthening the company’s position in North American temperature control solutions. Aggreko materially strengthened their position in 2006 with the acquisition of one of their largest competitors, GE Energy Rentals, boosting the fleet size by 30% and providing access to new markets in Central & South America. Aggreko managed to perform well amid tougher economic conditions in 2008/09, bolstering their position

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES in the Athabasca Oil Sands market via acquisitions of Power Plus Rentals and Sales Ltd in Canada. The company also announced the acquisition of Cummings power rental business in India achieving their objective of having operations in each of the BRIC nations. A highlight during this time was the delivery of over 130MW of power across 37 venues for the 2008 Beijing Olympics. One of the largest temporary power contracts ever awarded at the time. 2010 Northland Power Services was purchased augmenting oil & gas exploration activities in the Rocky Mountains region of North America. Aggreko also managed to

08 February 2021 4 Equity Research | Aggreko Plc

win a large three year contract to supply Bangladesh with over 200MW of power, worth over $150m. In addition to a series of smaller bolt-on acquisitions in 2011, Aggreko also acquired N.Z. Generator Hire Limited in New Zealand and provided emergency power relief to Japan following the Tsunami. In 2012 a leading temporary power solutions provider in South America, Poit Energia, was acquired. Furthermore, Aggreko successfully completed its assignment as the sole temporary power provider for the London Olympics, providing over 600 generators. 2013 saw the execution of the cross- border Mozambique power project, the largest of its kind delivering over 229MW of power. Following the introduction of Chris Weston, as Chief Executive Officer in 2015, Aggreko’s business was reorganisation into Rental Solutions and Power Solutions, shifting from the previous structure of International Power Projects and Local Business. The aim here being to eliminate duplication and streamline the effective delivery of power solutions. ICS, based in Canada, was acquired in 2015 to further develop specialised heating capabilities. The company launched its Heavy Fuel Oil (HFO) engine in 2016 and amid tough oil & gas conditions embarked on an exercise to slim down inefficiencies within this sector. In tandem to this, the product line was extended through the acquisition of DRYCO, a moisture control business. In 2017 Aggreko deployed its first solar-diesel hybrid project and purchased Younicos, a Berlin based company specialising in integrated energy systems and energy storage, which underpins the company’s long-term de-carbonisation and digitisation goals. Two further acquisitions were made in 2017: KBT, an Indonesian utility business, strengthening ties with PLN, the local Indonesian utility company; and TuCo a specialist provider of temporary heat and air conditioning solutions in the US. The following year, in 2018, Aggreko completed the acquisitions of both A Contact Electric Rentals in North America and Generator Hire Service in Australia. This leads us to Aggreko’s business today, where Chris Weston remains at the helm as Chief Executive Officer. Aggreko is considered the world-leading provider of mobile modular power, temperature control and energy solutions. With over 6,000 employees operating across 79 countries. In 2019 Aggreko had close to an average of 6,400MW of power on hire and greater than 50MW of the latest hybrid technology on hire.

FIGURE 1: Historical revenue and profit before tax margin FIGURE 2: Historical EPS and dividends per share Top-line and PBT margin development EPS and DPS development

2000 30% 120 30

1800 25% 100 25 1600

1400 20% 80 20 1200

1000 15% 60 15 mGBP PBT Margin

800 (pence)GBp (pence)GBp 10% 40 10 600

400 5% 20 5 200

0 0% 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 H1 H1 2020 (TTM) H1 2020 (TTM) Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES Revenue PBT Margin (rhs) Diluted EPS (per share) Dividend per share (rhs)

Source: Company reports Source: Company reports *Pre-exceptional items

08 February 2021 5 Equity Research | Aggreko Plc

Business Model Aggreko provides flexible, modular temporary power and temperature control solutions across a variety of geographies and sectors. The degree of complexity and level of add-on services offered varies by customer; from simple rental agreements to more complex cases leveraging Aggreko’s hands-on operational expertise. To highlight the diversity of Aggreko’s business within the temporary power and temperature control space the core product offering is outlined below:

• Power Generation • Solar Power • Cooling • Heavy Fuel Oil (HFO) Power Banks • Heating • Hybrid Power Plants • Dehumidification • Gas Power • Loadbanks Operations are trifurcated into three operating segments today, as has been the case since Weston’s re-organisation following his appointment as CEO in 2015.

Rental Solutions (RS) Power Solutions Power Solutions Utility Industrial (PSU) (PSU) RS is comprised of Short-term rentals and Centred on providing smaller, shorter-term medium-term projects for longer-term power projects/events in industrial clients centred solutions to national utility developed markets. RS on power. customers. Projects are operates across a diverse typically large in size. E.g. Industrials requiring sector base with a multi- reliable backup in case of product offering. grid instability; or off grid industrial projects such as mining and O&G projects in remote locations.

Customers, by sector: A primary focus is placed on 7 key sectors where National utility customers Aggreko has a deep understanding of sector-specific only. challenges: • utilities • oil & gas • building services & construction • petrochemical & refining • events • mining • manufacturing

Source: Company reports

As of H1 2020 Aggreko had a trailing twelve months (TTM) revenue of GBP 1.5bn. This excludes 27m of pass-through fuel revenues. Half of the revenues are derived from the shorter-term, transactional Rental Solutions division while PSI activities account for just shy of one third of revenues. PSU is the smallest division by revenue, representing one fifth.

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES These flexible power solutions are available across the globe, with Aggreko operating in 79 countries as of 2019. The single largest region being North America, accounting for approximately one third of revenues in 2019. Per the Q3 2020 Strategic Update, approximately half of the North American revenues are generated though power solutions in the Oil & Gas sector. The largest of which is concentrated in the Permian basin.

08 February 2021 6 Equity Research | Aggreko Plc

FIGURE 3: H1 2020 average MW on hire & fleet utilisation FIGURE 4: Revenue by segment (H1 2020, TTM) Fleet on hire & utilisation Revenue by segment

Average MW on hire Utilisation Pass-through fuel, 2% RS 1,252 55% PSI 2,497 65% PSU 2,227 65% Group 5,976 63% PSU, 20%

Source: Company reports

RS, 50%

PSI, 28%

Source: Company reports

FIGURE 5: Operating profit by segment (H1 2020, TTM) FIGURE 6: Revenue by geography, (H1 2020, TTM) Operating profit by segment Revenue by geography

Australia Pacific, Latin America, 5% PSU, 18% 11%

North America, 32% Asia, 10%

PSI, 24% RS, 58% Africa, 14% UK, 5%

Continental Middle Europe, 10% East, 11%

Eurasia, 3%

Source: Company reports Source: Company reports Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 7 Equity Research | Aggreko Plc

FIGURE 7: RS revenue by sector (H1 2020, TTM) FIGURE 8: PSI revenue by sector (H1 2020, TTM) Rental Solutions revenue by sector PSI revenue by sector

Petrochemical & refining, 2%

Other, 8% Building Other, 14% services & Petrochemical & construction, refining, 18% 10%

Mining, 6% Mining, 13%

Manufacturing, Manufacturing, 6% Building 6% services & Events, 6% construction, Oil & gas, 40% 18% Events, 7%

Utilities, 10%

Oil & gas, 16% Utilities, 5%

Source: Company reports Source: Company reports

Customer pricing & journey A generalised overview of the customer journey is provided in the diagram below:

Build relationship Proposal/Tender Design & Plan Mobilise & Install Operation De-mobilise & redeploy

• Online or sales-team • Proposal is available • Engineering experts • Customer selects • Setup allows for • De-commissioning • Customer discussion via multiple channels design bespoke delivery window proactive monitoring, checklist to ensure with sector experts • Order process is applications and • Delivery tracking service, and efficient pick-up • Real-time information tailored to rental solutions for the given • Customer informed maintenance • Fleet management available to enquiring needs challenge on what to expect • Rapid assistance systems utilized to customers • Design guides the upon delivery available for determine operations and operational issues maintenance logistics teams schedules

Source: Analyst. Aggreko customer teach-in, 2017

Pricing is determined on a contract-by-contract basis with key differentiators relating to complexity, nature of project i.e. emergency work, scale, and so forth. The bulk of the price is made up of a fixed rental charge, determined by units of generating capacity. On top of this are variable charges linked to the usage of either assets or additional services. Worth noting is that recently Aggreko begun offering more flexible pricing structures to encourage the adoption of certain innovative/greener power solutions. For example, the pricing structure for operations at the Syama Gold Mine in Mali was overlayed with an incentive program whereby, given that improved efficiencies for various pre- specified KPIs are achieved, Aggreko receives between 25% to 50% of the ensuing fuel savings. Due to the infancy of many greener solutions, this risk spreading helps to align energy transition incentives and provides Aggreko scope to be compensated should targets be met.

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES Strategy - Energy transition In November 2020 Aggreko executives re-affirmed their strategic vision for the company going forward. The foundations of the strategy are rooted to those set out in the 2015 strategic update following the arrival of Weston as CEO. Re-organising the business from local and international power projects to three operating units: RS, PSI, and PSU. The strategy evolved slightly in 2017 shifting focus on one of the strategic pillars, from scale to capital efficiency, with the aim of optimising the deployment of resources. Further to this, the strategy was re-positioned to align with four key “megatrends”.

08 February 2021 8 Equity Research | Aggreko Plc

• Demand growth, driven by electrification and urbanisation of societies • Decentralisation • Digitalisation • De-carbonisation, underpinning the energy transition To prosper amid the changing energy environment, Aggreko are focused on 4 key strategic priorities: • Technological development to accelerate efficiency and the adoption of lower emission solutions • A core sectoral emphasis to assist key client segments through the transition • Continued development of the workforce to expand capability and drive innova- tion • Disciplined capital allocation allowing for a competitive cost base Aggreko also aligned themselves with the Paris Agreement, setting out 4 key commitments: • Reduce the diesel fuel used in customer solutions by at least 50% by 2030 • Reduce local air quality emissions by at least 50% by 2030 • Achieve net-zero emissions across business operations by 2030 • By 2050 or sooner Aggreko and augmented services provided to be net-zero The update presents a vision whereby Aggreko are able leverage a combination of their sectoral expertise, technical capability, and global presence to capitalise on opportunities arising from uncertainties caused by the energy transition.

FIGURE 9: Strategic update visualised Overview of the Nov-20 strategic update

Management state 4 megatrends driving growth in the temporary power market

Decarbonisation Demand Growth (Key driver of the energy Decentralisation Digitalisation transition)

Management have set 4 strategic priorities to position Aggreko for growth

Technology Investment Customer Focus Expert People Capital Efficiency

Aligning with Paris Agreement

Competitive advantages to drive growth Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

Global Presence with Sector Expertise Technical Capabilities Local Knowledge

Source: Analyst. Aggreko Strategic Update, Nov-20

08 February 2021 9 Equity Research | Aggreko Plc

Fleet overview At the end of 2019 Aggreko had a total power fleet generation capacity of 9700MW and saw a fleet utilisation rate of 65% across the group. As of H1 2020, power generation capacity is estimated to have fallen by 1.6% to 9544MW with group utilisation dropping by 2pp to 63%, amid difficult market conditions arising from the COVID-19 induced lockdowns across the world. Close to 80% of generating capacity is derived from diesel generators and while it is expected that they continue to upgrade traditional generators to the more efficient G3+ variants, by 2030 management aim to have reduced their fleet reliance on diesel by over 50%. Shifting their primary fuel reliance to gas while rapidly expanding storage and renewable capabilities.

FIGURE 10: Power fleet overview Fleet size, composition and expected composition

100% 2030 Expected Type 2019 (MW) 2019 Weight Weight 90% Diesel 5,820 60% 80% 30-40% Diesel G3+ 1,649 17% 70% Gas 1,649 17% 50% 60% Next gen gas 388 4% 5% 50% Heavy fuel oil 194 2% 40% Storage & solar 46 0% 5-15%

30% Total 9,700

20%

10%

0% 2019 2030E

Diesel Diesel G3+

Gas Next Generation Gas (NGG)

Heavy Fuel Oil (HFO) Storage & Solar

Source: Company reports & Aggreko Strategic Update, Nov-20. Analyst estimates.

Under the Weston’s management, fleet age has not been an explicit KPI presented, nor explicitly disclosed during earning calls. This ideology is driven by technological developments that allow for a better understanding of the maintenance cycle. This is also supported by the idea that Aggreko has been systematically upgrading various parts of their legacy diesel fleet to the more efficient G3+ variants, perhaps rendering the fleet age metric as somewhat redundant. With that in mind, in the interim 2018 earnings call the CFO, Heath Drewett, outlined that Aggreko is not employing a CAPEX policy that will see requirements increase in 2-3 years. As of 2020, CAPEX indications have not materially increased from the GBP 200-300m range seen under Weston’s leadership. This supports the indications that the firm is not simply pushing CAPEX out into the future. The most recent strategic update, in Nov-20, did highlight an approximate age profile for the diesel fleet, suggesting approximately a third of the fleet is older than 8 years, close to half of the fleet is between 5-8 years andthe remaining ~20% of the fleet is younger than 5 years. Per the strategic update around 40% of the diesel fleet will be fully depreciated by 2024. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES As such management see no material risk to stranded diesel assets amid the energy transition. Between 2021-2025 management have indicated that they expect around two thirds of their CAPEX to be directed towards lower emission assets. Important to note is that more fuel-efficient diesel assets, such as Tier 4 Final / Stage V generators, are included within this spend so I see no material risk stemming from a pivot in types of fuel used by generators.

08 February 2021 10 Equity Research | Aggreko Plc

Key drivers Given that Aggreko offers services across a wide range of sectors the company is exposed to numerous market forces. The degree to which is dependent on, among other things, sectoral and geographic exposures. I shall delve deeper into key drivers and their respective trajectories later in the report. That said, from a high-level perspective and aside from the key megatrends mentioned in the strategy overview, management have previously stated 8 key drivers affecting the trajectory of the group:

Population growth & GDP Growth Propensity to rent Ageing infrastructure rate of urbanisation

Natural disasters & Frequency of major Reliability of supply Fragmented competition geopolitical emergencies events

Source: Aggreko 2016 annual report

Management

Executive Directors & Performance Overview

CEO - Chris Weston Chris Weston was appointed as Chief Executive of Aggreko in January 2015. Prior to this he was Managing Director for Centrica’s International Downstream operations, having joined Centrica in 2001 following a career in the telecoms industry. Weston has also served in the Royal Artillery and was appointed as a non-executive director for the Royal Navy in 2017. In March 2021 Weston was appointed as a non-executive director for Barratt Developments plc. Weston holds a BSc in Applied Science, as well as an MBA and PhD from Imperial College London. Since Weston’s arrival Aggreko’s diluted TTM EPS has fallen by 45% as of H1 2020 (-39% at the end of 2019 for a pre-COVID-19 environment reference). Over the same time frame shares have decreased in value by 43%. ROCE, a preferred performance measure for Aggreko, has fallen from 16% in 2015 to 11.2% in H1 2020. On a standalone basis these figures do not seem particularly encouraging. However, delving deeper one finds evidence of shifts in external factors combined with the cessation and re-pricing of various extraordinary long-term projects, such as lucrative military and disaster projects. Much of this was highlighted during Weston’s inaugural investor update in Aug-15 where transparency was shed on key contracts that had been driving supernormal growth, specifically between 2008-2012. Although the nature of these excess earnings was not a revelation, Weston’s transparency is noted. As are his grounded expectations, evidenced by the revision of growth forecasts by over 50% to a 6% CAGR for the group, down from the previous management CAGR expectation of 13%. Hence, I feel these statistics do little justice with regards to highlighting the firms transition under Weston’s leadership. With that in mind I am cognisant that simply analysing the share performance over an alternative time-period is somewhat nugatory and instead feel it is more important to understand what Weston has implemented in terms of evolving Aggreko to secure future growth prospects for the business To get a feel for Weston’s execution I look at a few key initiatives, set out during the business review presentation in Aug-15, and to what extent they were achieved. Strong execution capability on cost saving initiatives: First and foremost, GBP 40m Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES of savings were expected by 2017 for both the new procurement programme and administrative streamlining initiatives. The former procurement programme exceeded expectations by the end of 2017 generating GBP 60m of savings per the 2017 annual report. Administrative efforts are a little more difficult to strip out. Taking a crude proxy for the streamlining efforts by looking at administrative costs, excluding exceptional items, finds a 66bps increase in administrative costs as a percentage of revenues between 2015-2017. However, factors such as softer rental pricing could be distorting this figure. Per the 2017 earnings call, Weston highlights that over GBP 100m of cost

08 February 2021 11 Equity Research | Aggreko Plc

savings were achieved, implying the target of GBP 40m for administrative streamlining was also achieved. More realistic yet still impelling ROCE targets: Given the capital-intensive nature of Aggreko, ROCE is a key performance indicator used by management. Following the business review in 2015, a medium-term ROCE target of 20% was deemed to be reasonable. However, following the appointment of the new CFO in Jan-18, Heath Drewett, these targets were refreshed with better information regarding the operating environment and market trajectories. Since 2018 management has been targeting a ROCE in the “mid-teens”, aiming to have achieved these levels in 2020. The unforeseen outbreak of COVID-19 has however pushed this out further. Note that while I shall dig deeper into margin expectations later in the report, the targets set by management do not appear overly ambitious. That said, they are also not low-balling a figure here. Given that management cannot rely on volatile market dynamics over the longer-term, there is a degree of execution risk that must be assumed to meet these targets. As such, I like that the reset target is more realistic, while also maintaining adequate pressure on management to continue executing.

FIGURE 11: Indexed share price performance FIGURE 12: ROCE development External & legacy factors have played a key role in the Achievable Medium-Term ROCE Targets under-performance

200 35% Exceptional items & market tailwinds driving the supernormal performance 180 30% 160

140 25% 2018: ROCE target adjusted 120 to Mid-teens 20% 100

Index Level Index 80 15%

60 10% 40 Weston's Arrival 20 Weston's business review & 5% strategy presented 0 0% Jul/13 Jul/14 Jul/15 Jul/16 Jul/17 Jul/18 Jul/19 Jul/20

Jan/13 Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 Jan/19 Jan/20 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Aggreko FTSE250 Index WTI Crude ROCE* Medium-Term Target

Source: Bloomberg, Analyst estimates Source: Company Reports * Pre-exceptional return on capital employed (ROCE). Calculated by dividing operating profit pre-exceptional items in the period by the average of the net operating assets as at 1 January, 30 June and 31 December.

Digitising the business and simplifying the customer experience with systems: Weston presented a case that Aggreko’s rapid growth, prior to him taking the helm, had led to capital misallocations and in turn the underdevelopment of certain parts of the business. Management systems and processes being an area highlighted in the Aug-15 business review. By 2017 Aggreko had invested approximately GBP 20m in new systems and in early-2018 had completed the roll out of an enhanced CRM system. Further to this, in 2018 Aggreko began offering online services via its e-commerce

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES platform. Management were particularly keen on both simplifying and improving the customer experience through investments into systems. Aggreko present results of an industry standard Net Promoter Score (NPR) to proxy for customer satisfaction. While it is important to read such figures with a certain degree of cynicism. I note that as of 2019 Aggreko’s 65% NPR was within the top 5% of B2B service organisations on a global basis.

08 February 2021 12 Equity Research | Aggreko Plc

Still a business that can win big-ticket contracts: In the 2015 business review Weston prudently stated that Aggreko “can’t rely on exceptional events to drive growth”. The business transition has however not impacted the firm’s ability to win big ticket contracts. A notable example being the 2020 Tokyo Olympics contract worth over USD 200m. This contract has since been renewed following pandemic-related delays in 2020. A safer business able to retain their talent: Aggreko’s people and culture were outlined as a key pillar of the firm’s competitive advantage. Since Weston’s arrival, the company has become safer for workers when benchmarked using their preferred measure of lost time injury frequency (LTIFR). LTIFR falling by around two thirds from its 2015 level. Employee turnover has remained around the 10% mark, in-line with management targets, while company engagement surveys show an improvement from 72% in 2015 to 76% in 2019. Again, while it can be difficult to extrapolate on these types of figures, I am encouraged by the trajectory. Especially when considering that the business has been undergoing a transformation and the fact that people are often resistant to change, as highlighted by Kanter (2012) in the Harvard Business Review. Steps taken to evolve the business and expand greener temporary power solutions: Due to Aggreko’s market position, largely serving carbon intensive industries, Weston faces the critical yet unenviable task of trying to catalyse change through the adoption of lower carbon emitting solutions. All this must be achieved while remaining competitive in what is largely a price elastic market. Additionally, the nature of temporary power itself rules out certain types of renewable alternatives in specific settings and many solutions that are being touted today remain experimental. The acquisition of Younicos in 2017 marks an inflection point for the business, branching into storage solutions and allowing Aggreko to provide optimised hybrid solutions alongside either their thermal fleet or solar and other renewable solutions. For reference, Caterpillar, a main competitor for Aggreko on a global level, has offered the same type of microgrid solution from 2015. So, I do not see a real divergence in the type of renewable solutions for larger players in this space. Accordingly, I am aligned with management’s belief that the accelerating demand for de-carbonisation creates challenges for power infrastructure going forward. I would also like to stress that expecting binary revolutions in carbon intensive of industries is simply not realistic. Hence, maintaining modularity is vital as it allows for temporary power to act as the bridging mechanism in the transition towards a greener world. With that in mind, I see the push for optimisation in tried and tested solutions, leveraging hybrid and renewable options where possible, as appropriate.

CFO - Heath Drewett Heath Drewett joined Aggreko as Chief Financial Officer in the beginning of 2018. Prior to this Heath was Group Finance Director at WS Atkins plc and subsequently, following the acquisition by SNC Lavalin, President with responsibility for its global engineering, design, project and programme management business. Before his career at WS Atkins, Drewett worked within the corporate strategy and finance functions of British Airways. Drewett is a chartered accountant, having trained at PwC, and holds an MA in Mathematics from the University of Cambridge. As previously highlighted, I prefer not to simply look at the share price to get a feel for management’s execution capability. Drewett’s targets, set out in 2018, revolved around improving operational efficiency, specifically within working capital. Cash collections and receivables were heavily targeted and for 2019 Aggreko saw a GBP 58m year-on-year reduction in balance sheet trade receivables. I am encouraged by the reversal of this 5-year trend and appreciate the enhanced transparency on receivables given that Aggreko operates in jurisdictions where the rule of law may not be fully developed and payment practices can be unpredictable. Further improvements relating to an inventory reduction of 8m GBP in 2019 also played a key role in optimising Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES Aggreko’s balance sheet and changing the trajectory of the firm’s ROCE.

Chairman & non-executive directors Aggreko aligns its policies with the UK Corporate Governance Code. Ken Hanna has been acting Chairman of Aggreko since 2012 and according to Provision 19 of the Code, the Chair should not remain in post beyond nine years from the date of their first appointment to the board, with permission to extend under various circumstances. Given that Hanna was an existing Non-executive Director since 2010, in 2018 this was

08 February 2021 13 Equity Research | Aggreko Plc

extended to the Apr-21 AGM to ensure orderly succession. Announced in the interim 2020 report, as of Oct-20 Mark Clare was appointed as a non-executive director and Chair Designate. Subject to shareholder approval in the Apr-21 AGM, Clare will assume the role of Chairman for Aggreko. Clare is a qualified accountant and brings a wealth of industry knowledge and experience to Aggreko, specifically across the energy, utilities and construction sectors. Non-executive Director and Chair postings: Clare is currently the Chairman of Grainger plc; the Senior Independent Director at United Utilities Group plc; and Non-executive Director at Premier Marinas Holdings Ltd. Clare was also a Senior Independent Director at Ladbroke’s Coral Group plc 2016-2018 and a Non-executive Director at BAA plc 2001-2006. Executive Postings: Clare was the CEO of one of the UK’s largest residential real estate development companies, Barratt Developments, between 2006-2015. Prior to this, from 2002, Clare was Managing Director of Centrica’s British Gas subsidiary and CFO of Centrica plc from 1997-2002. He has also served as a trustee of the Energy Savings Trust, the Green Building Council and BRE. I do not anticipate any issues from this transition and positively note the tenor overlap at Centrica between Clare and Weston.

Name Yr Joined Note Ken Hanna 2010 Chairman (Since 2012) – Nomination extended to the Apr-21 AGM Mark Clare 2020 To assume role as Chairman following the Apr-21 AGM, subject to shareholder approval Sarah Kuijlaars 2019 Diana Layfield 2012 Ian Marchant 2013 Chair of the Audit Committee (from 2016) Dame Nicola Brewer 2016 Chair of the Ethics & Corporate Responsibility Committee (from 2019) Barbara Jeremiah 2017 Chair of Remuneration Committee (from 2018) Uwe Krueger 2015 Senior Independent Director (from 2018) Miles Roberts 2017

Source: Company reports

Remuneration Barbara Jeremiah was appointed Chair of the Remuneration Committee in Apr-18 and introduced an updated remuneration policy in the 2018 AGM. The policy was set for review in the Apr-20 AGM and no specifics have been detailed in the interim reports, I expect to see any changes outlined in the 2020 full-year report. Concisely, Aggreko bifurcates Directors’ remuneration into a fixed and variable component. The latter being driven by pre-defined performance targets. The remuneration policy is structured in a way that executives can achieve around double their fixed element if targets are achieved. With around half of the variable element being composed of equity. I feel that this provides reasonable scope for management to build up equity stakes and adequately aligns management interests with that of shareholders. Viewing remuneration from a different angle, taking CEO compensation against a handful of peers, and scaling by revenue and EBIT. On these metrics, Aggreko’s

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES remuneration policy appears in line with the market and does not present any red flags in terms of excessive remuneration. Weston’s pay package also appears to be nominally in-line with the rest of the FTSE 250, according to CIPD’s executive pay report in 2019.

08 February 2021 14 Equity Research | Aggreko Plc

Element Fixed/Variable CEO CFO Salary Fixed 2019: £750,000 2019: £460,000

Benefits Fixed e.g. car allowance etc… 2019: £27,175 2019: £19,342

Pension Fixed. Note that this will decrease, by 2023, to the rate applied for the majority 2019: 30% of salary. 20% of salary in 2019 of the workforce (currently 9%) Reduced to 24% in 2020

Annual Bonus Variable: Driven by pre-defined performance metrics. E.g. in 2019 Diluted EPS 2019: £536,550 2019: 329,084 and personal objectives, in a 80/20 weighting. There is a cap of 175% of Salary. 75% is paid in cash and 25% in deferred shares with a 3-yr lockup.

Long-term incentive Variable: Subject to pre-vest conditions over 3 years. A 50/50 split is currently 2019: £0 2019: £0 programme (LTIP) mapped onto diluted EPS and ROCE targets for this element.

Total (2019) £1,538,725 £900,426

FIGURE 13: CEO compensation as a % of revenue vs peers FIGURE 14: CEO compensation as a % of EBIT vs peers CEO compensation does not appear excessive relative to This is re-affirmed on the EBIT level too peers on a revenue basis

0.25% 2.0%

1.8%

0.20% 1.6%

1.4%

0.15% 1.2%

1.0%

0.10% 0.8%

0.6% CEO Comp as a % of EBIT CEO Comp as a % of Revenue 0.05% 0.4%

0.2%

0.00% 0.0% Jun/18 Jun/18 Jun/15 Jun/15 Jun/12 Jun/12 Jun/09 Jun/09 Sep/17 Sep/17 Sep/14 Sep/14 Sep/11 Sep/11 Sep/08 Sep/08 Dec/19 Dec/19 Dec/16 Dec/16 Dec/13 Dec/13 Dec/10 Dec/10 Dec/07 Dec/07 Mar/19 Mar/19 Mar/16 Mar/16 Mar/13 Mar/13 Mar/10 Mar/10

Aggreko Median Aggreko Median

Source: Bloomberg, Analyst estimates Source: Bloomberg, Analyst estimates Note: The median consists of figures for Ashtead Group, Caterpillar, Herc Holdings, Speedy Note: The median consists of figures for Ashtead Group, Caterpillar, Herc Holdings, Speedy Hire plc, and United Rentals. Hire plc, and United Rentals.

Further aligning management and shareholder interests is Aggreko’s guideline stating that executive Directors have a 5-year period to achieve the shareholding guideline of at least 250% of base salary. The market impacts of the global COVID-19 pandemic led to the group suspending the 2020 annual bonus and annual salary review process. Shareholdings for executives at the end of 2019 were as follows:

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES Element Shares held outright Shares subject to LTIP awards subject to Options (share-save Total deferral performance plan) Chris Weston 83,788 51,163 759,776 2727 897,454 Heath Drewett - 42,936 395,400 2727 441,063

08 February 2021 15 Equity Research | Aggreko Plc

Shareholders The top 10 largest shareholders hold approximately 43% of total shares outstanding. Liontrust is the largest holder, with a total stake of 11% through a handful of their funds. The Liontrust Special Situations Fund being the largest representing 87% of their Aggreko ownership. Also notable and not highlighted within the top 10 is the Salvesen Family who collectively hold around 3% of total shares outstanding.

Holder name % out Liontrust Asset Management PLC 11.22% Capital Group Cos Inc/The 6.49% Vanguard Group Inc/The 5.74% BlackRock Inc 3.35% Prudential PLC 3.22% Power Corp of Canada 3.01% Norges Bank 2.60% Legal & General Group PLC 2.55% Ameriprise Financial Inc 2.24% City of New York Group Trust 2.17%

Source: Bloomberg and company filings. As of Dec-2021.

Per the FCA’s notification and disclosure of net short positions, short interest in Aggreko has steadily declined from highs of around 10% of shares outstanding, in the beginning of 2018, to 1% as of Dec-20. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 16 Equity Research | Aggreko Plc

Temporary Power Market­­ Outlook The reliable supply of electricity is critical to the functioning of virtually every industry in the modern world. Temporary power providers target a specific portion of the market where either the availability and/or quality of supply cannot be secured via permanent energy infrastructure. Although the duration of such solutions is ultimately viewed as temporary, the nature of a dislocation, which a power solution seeks to bridge, can lead to significantly elongated terms. For example, conglomerates and utilities operating in developing nations, with underdeveloped electrical infrastructure, generally require longer-term and more complex solutions. On the other end of the spectrum, demand for shorter-term contracts in developed markets are driven by factors such as natural disasters, events, and the commodity cycle. With regards to customer segmentation, as demands are generally driven by the availability and reliability of supply infrastructure, the market is broadly segmented by developed and developing regions. Aggreko referring to the former as their Rental Solutions segment and the latter as Power Solutions. Aggreko’s customer composition, by sector, is highlighted in the previous Company Profile section (figures 7 & 8). Management expect, over the medium-term, to generate ~5-10% Revenue CAGR. Aggreko highlights the expected 70% increase in global electricity demand by 2050, from BNEF’s New Energy Outlook 2020, equating to around 1.8% CAGR. With the temporary power market expected to grow at a premium, with a 5% CAGR between 20-30 according to a study by Verify Markets conducted for Aggreko. This suggests, the Temporary Power Market will grow from around USD 9bn in 2020 to USD 15bn in 2030. I believe that these underlying growth estimates are reasonable and appear in-line with the predictions of other forecasting agencies, therefore, I feel that the medium-term CAGR expectations are reasonable. However, achieving the top-end will be subject to a combination of exogenous market factors and precise internal execution, specifically relating to the fleet development within the context of the energy transition. In the following sub-sections I look at underlying demand drivers of the temporary power market: the capacity shortfall, commodity cycle, building & construction, and events. This is followed by some insights into various market dynamics relating to the propensity to rent power equipment, competition, barriers to entry, and regulation. In summary, I believe that the traditional structural growth story for the temporary power rental market remains largely intact. Further, the acceleration of various themes, such as de-carbonisation, has the potential to magnify dislocations in certain regions and sectors. Providing scope for above-market rates of growth as temporary power providers are engaged to act as a bridging mechanism for economies and sectors transitioning away from their legacy power infrastructure. Additionally, though unpredictable, I like the added kicker of large one-off events and believe Aggreko’s scale continues to act as an economic moat for these types of contracts. That being said, challenges arising from softer demand in key sectors, such as oil & gas, in tandem with an events business that is to a large extent at the mercy of social distancing measures, does create significant uncertainty in the path over the near-term. Especially amid a shifting customer demand profile – beginning to turn toward cleaner sources of power – which adds a layer of execution risk with regards to fleet development. The Capacity Shortfall —­­­ down but not out The thesis for temporary power was to a large extent underpinned by the forecasts that suggest demand for power will far outstrip that of supply. However, over the years energy demand forecasts have been revised as GDP growth has slowed. In the 2015 business review, a large revision was made, almost halving the expected 2020 capacity Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES shortfall from 195GW to 105GW, highlighting the shrinking opportunity in this specific segment. In the most recent, Nov-20, strategic update the capacity shortfall was not referenced as a key driver to the business. Highlighting the company’s decreasing reliance on PSU contracts. Having said that, PSU remains an important component of the revenue mix. Accounting for around one fifth of sales, net of pass-through fuel in 2019. This is especially true when considering the lumpy and longer-term nature of utility contracts that help to diversify the revenue stream from various cyclical trends, prevalent in other parts of the business. Capacity deficits are also indirectly supportive

08 February 2021 17 Equity Research | Aggreko Plc

of PSI demand, where conglomerates require reliable and continuous supply of energy that existing infrastructure is not able to provide. Taking the above into consideration and the fact that large PSU contracts can suddenly be apportioned with little warning, i.e. emergency contracts following a natural disaster, I feel it is important to take a high- level look into the utility segment and trajectory of capacity shortfalls. While the estimation of actual capacity shortfalls is an inherently complex task, this can primitively be achieved by looking at the difference between the year-on-year generation capacity additions and consumption growth. A consistently negative spread would suggest a large or growing capacity shortfall and vice-versa. I see from figure 15 that global figures on power capacity and consumption are generally supportive of management’s decision to pivot resources away from this line of business. That said, given the variance in power infrastructure and investment across nations, going one step further and looking at specific regions or nations does highlight the persistence of supply gaps in key nations and developing regions (figure 16). Hence, I find that although on aggregate the market for PSU appears smaller, an opportunity remains in key national markets. On a more anecdotal point, the supply gap is arguably chronic in these developing markets as the expansion of a nation’s power infrastructure often goes hand-in-hand with an increase in industrial demand for energy plus the urbanisation and electrification of society; leading to energy demands outstripping the government’s ability to install new capacity - at least over the medium-term. This idea is corroborated when I look at just how much room there is for energy consumption to grow in non-OECD countries before it reaches a level closer to their OECD counterparts (figure 17). Worth noting with this is the fact that developing markets are generally more reliant on fossil fuel infrastructure. Hence, in the future, developing market capacity could also face material headwinds relating to the de-carbonisation trend. The aforementioned capacity headwind, relating to de-carbonisation, is also applicable to the developed world, where ageing infrastructure combined with decreasing levels of infrastructure investment could drive secular demand for temporary power to act as a bridging mechanism for the energy transition.

FIGURE 15: Difference between capacity additions and electricity con- FIGURE 16: Cumulative difference between capacity additions and elec- sumption growth tricity consumption growth Post-08 the energy supply gap appears to have started However, huge national disparities still exist to narrow in key regions 15.0% 120

10.0% 100

5.0% 80

0.0% 60 1981 1990 1999 2008 2017

-5.0% Index (2000 = 100) 40

Capacity Additions Less Consumption Growth Consumption Less Additions Capacity -10.0% 20

World

Africa 0 Eurasia 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Latin America Angola Mozambique (rhs) Nigeria Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES Asia Pacific (ex. China & Australia) Middle East Argentina

Source: Analyst. U.S. Energy Information Administration. Source: Analyst. US Energy Information Administration.

08 February 2021 18 Equity Research | Aggreko Plc

FIGURE 17: Energy Consumption per Capita (MMBtu/person) FIGURE 18: Weighted capacity additions and YoY% world consumption Developing markets still have a long way to go till ener- The phasing out of fossil fuels may amplify regional gy consumption catches up with the developed world capacity gaps

250 8%

7%

200 6%

5%

150 4%

3% 100 2%

1% 50 0% Energy Consumption per Capita (MMBtu/person) 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

0 World Capacity, Fossil Fuels YoY% 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 World Capacity, Non Fossil Fuels YoY%

Non-OECD OECD Africa World Consumption YoY%

Source: Analyst. U.S. Energy Information Administration. Source: Analyst. US Energy Information Administration.

Macro backdrop ­­­— an overview It is generally accepted that Aggreko’s business is strongly linked to trends in economic output. When I separate out the relationship by emerging and advanced markets, according to IMF taxonomy, there appears to be a strong relationship between Aggreko’s revenue development and Real GDP growth of emerging markets (figure 19). World GDP is expected to fall sharply, by 4.4% in 2020, according to the IMF’s Oct-20 World Economic Outlook. Recovering by the end of 2021, with the baseline growth assumption of 5.2% for 2021, largely driven by emerging markets. The IMF’s base case assumes that social distancing measures remain in place for most of 2021 and begin to dissipate over 2022, as vaccinations drive herd immunity to COVID-19. After the normalisation in 2021/22, global growth is expected to converge to around 3.5% over the medium term. Split 4.7% and 1.7% for emerging and advanced economies respectively. These figures would suggest that management see the bulk of their forward-looking growth potential, adjusting for post-COVID-19 normalisation, coming from emerging markets. PMIs are generally supportive of this rebound trajectory (figure 21), however, glaring regional differences, with regards to a recovery in production, continue to persist. Specifically, in the Middle East and Africa which are key growth components in Aggreko’s future (figure 22). As of H1 2020 figures, close to one third of revenues are related to either the oil & gas or petrochemical & refining sectors. The single largest geographical market being North America, which accounts for around one third of total revenue for H1 2020. Although oil prices have recovered from their lows in April 2020, briefly turning negative at the front end of the futures market. The material deterioration in rig counts (figure 23) presents a picture of softer demand from this sector, at least over the near term. Although in the longer-term I believe that, among other things, expansion in the global middle class combined with infrastructure spending, to support modern life, will

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES drive a commodity expansion cycle. The near-term headwind in oil & gas is material for Aggreko. Having experienced a 20% CAGR in revenues from oil & gas between 2016- 2019, the narrative for this sector has, in my opinion, shifted from one of growth to one of preservation. On a more positive note, construction, which accounts for around 12% of LTM H1 2020 revenue, appears more stable and has not experienced a material downturn – when comparing to post ’08 financial crisis levels – in levels of spending (figure 24). The general increase in metals prices is also expected to herald a new era of growth for

08 February 2021 19 Equity Research | Aggreko Plc

the mining sector. I recognise that trying to predict demand from natural disasters and large one- off events is futile. That said the more generic and often recurring events business has experienced attractive rates of growth under Weston’s leadership, growing at a compounded annual rate of 13% between 2016-2019 and in turn becoming a key component of the business. By the end of 2019, prior to the COVID-19 induced lockdowns, the events business – across RS and PSI – made up close to 10% of group revenues. Much of the shorter, and even medium-term, trajectory for this line hinges on the effective roll-out of COVID-19 vaccinations and the subsequent relaxation of social distancing measures, as economies return to “normal” (I use quotation marks around the word normal as one cannot be certain as to what the new normal will look like). For this reason, I must note that Aggreko’s business is, to a degree, directly exposed to downside risks should we see continued social distancing measures and lockdowns. That being the case, the modularity of Aggreko’s solutions does enable it to capitalise on various opportunities under such circumstances; somewhat cushioning the downside. A recent example being the Sunderland (UK) Temporary Hospital Project, housing 460 beds, which required the rapid set up of 6 generators. Following on that line of thought, it is said that the pandemic has rapidly accelerated the digital transformation. Corroborated by a 40% increase in internet traffic across the globe, between February and mid-April 2020 according to the IMF. This is of particular interest to us as in the recent Nov-20 strategic update Aggreko declared their increasing focus on temporary power solutions for datacentres going forward. I believe this pivot is founded on strong fundamentals as energy demand from data centres is expected make up around one fifth of global energy use by 2040 (figure 25). Up from 3% in 2017 according to research by Centrica. Data centres are by-design extremely power-hungry and provide scope for additional verticals such as load testing, temperature control and dehumidification. I believe that the general consensus of a high single digit CAGR for data centre infrastructure, on a global basis, is buttressed by growth of the global middle class, and with it the acceleration in urbanisation and electrification of societies.

FIGURE 19: Aggreko Revenue and Real GDP, Annual YoY% (2006-2019) FIGURE 20: Real GDP, Annual YoY% Strong relationship between EM output and Aggreko’s Still expecting a bounce back, led by emerging markets – revenue growth albeit at a lower terminal rate

9% 10 IMF Forecast (20-25) 8% 8 R² = 0.5128 6 7%

4 6% 2 5% 0 4% 1980 1989 1998 2007 2016 2025 Real GDP, YoY% -2 3% -4 Aggreko Revenue Growth, YoY% 2% -6

1% -8

0% Advanced economies -20% -10% 0% 10% 20% 30% 40% Emerging market and developing economies

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES Real GDP Growth, YoY% World

Source: Analyst. Bloomberg. Company Reports Source: IMF 2020

08 February 2021 20 Equity Research | Aggreko Plc

FIGURE 21: Manufacturing PMIs (Seasonally adjusted) FIGURE 22: CPB Industrial Production Index (SA) Manufacturing PMIs ricochet off lows However, under the hood stark regional differences exist in production rebounds

56 160

54 150

52 140

50 130 09 = 100) 48 - 120 PMI (SA) PMI

46 110 Index (Dec

44 100

42 90

40 80 Dec/17 Jun/18 Dec/18 Jun/19 Dec/19 Jun/20 Dec/09 Dec/12 Dec/15 Dec/18

EM Manufacturing PMI (SA) JP Morgan World Manufacturing PMI (SA) World Emerging Market Africa & Middle East

Source: Bloomberg (MPMIEMMA Index, MPMIGLMA Index) Source: Bloomberg. CPB Netherlands Bureau for Economic Policy Analysis. (IPECPRWO Index, IPECPREM Index, IPECPRME Index)

FIGURE 23: Baker Hughes Oil & Gas Rotary Rig Count, World & North FIGURE 24: Census Bureau US Construction Spending (SAAR) and US America Industrial production (SA) Expect softer demand for temporary power from oil & US construction spending has fared relatively well gas over the near term

4500 120 20

4000 15 100 3500 10

3000 80 5 2500 60 0 YoY%

2000 USD/bbl Rig Count Jun/20 Jun/17 Jun/14 Jun/11 Sep/19 Sep/16 Sep/13 Sep/10 Dec/18 Dec/15 Dec/12 -5 Dec/09 Mar/18 Mar/15 Mar/12 1500 40

-10 1000 20 -15 500

0 0 -20 Dec/09 Dec/11 Dec/13 Dec/15 Dec/17 Dec/19 Census Bureau US Construction Spending (SAAR)

World North America WTI Crude (rhs) US Industrial production (SA)

Source: Bloomberg. (BAKMWRLD Index, BAKENAM Index, CL1 Comdty) Source: Bloomberg. (CNSTTYOY Index and IP YOY Index) Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 21 Equity Research | Aggreko Plc

FIGURE 25: Global data centre energy demand by data centre type As the digital economy accelerates, so will the demand for power-hungry hyperscale data centres

250

IEA Forecast (2020-2022)

200

150 TWh

100

50

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Traditional Cloud (non-hyperscale) Hyperscale

Source: IEA 2020

Ownership vs Rental —­­­ riding the wave Firstly, it is important to note that PSI and RS lines of business are manifestly short- term in nature. Longer term contracts are seen in the PSU segment, where an average contract length of 3 years is quoted by management, based on the historical off-hire rate. Consequently, and although I acknowledge the importance of recurring business for Aggreko, I only see the propensity to rent factor as a material risk for longer- term projects – typical in the PSU segment. The importance of PSU has decreased considerably (highlighted in the Business Model sub-section). More precisely, achieving a negative 8% CAGR between 2016-2019. However, as mentioned above, it still makes up a material portion of group revenue; ergo, the relative cost of rental vs ownership remains a relevant one. With cost being by far the most important factor for customers renting power equipment I believe there are two key considerations. The cost of power in comparison to the cost of either buying the equipment yourself or installing permanent infrastructure; and the ductility of spending in key sectors/nations. In other words, even if buying the equipment is the most cost-effective solution over the longer-term, is it feasible when considering financial constraints? My hypothetical example, loosely based on estimates from recent studies focusing on temporary power solutions in Nigeria, underscores the logic of PSU/long-term PSI customers purchasing their own diesel generators in cases where they require a power solution for more than 2/3 years. However, as long as financial constraints remain and structural energy infrastructure deficits persist I do not envisage demand from these customers disappearing. On another note, the illustration also highlights the rationality of including hybrid solutions in the fleet. Although the current state of Aggreko’s hybrid technology, in terms of reliability and cost, does appear to lend itself more to longer- term contracts. There is the added kicker, over time, of adoption in shorter-term

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES solutions as costs decline and regulatory constraints encourage customer adoption. In summary, I am not particularly concerned by this factor as the customers issuing longer-term contracts in developing markets are, generally, financially constrained. Making up-front financing of full-scale power infrastructure difficult. Not to mention

08 February 2021 22 Equity Research | Aggreko Plc

the second derived costs arising from, among other things, bringing expertise in-house and ancillary infrastructure spending e.g. roads and power lines. Supporting this line of thought is the rising debt burdens across emerging markets (figure 27), which I see as a headwind for domestic infrastructure investment. Furthermore, with developed markets seeing power plant retirements and higher debt burdens, as fiscal policies are leveraged to deal with the fallout from COVID-19 lockdowns, one could expect to see both capacity and financial constraints spilling over into emerging markets as the developed markets crowd out their developing counterparts.

FIGURE 26: Hypothetical 100MW Power Solutions project in Nigeria Hybrid power solutions appear particularly compelling for Aggreko’s longer- term offering

Diesel PV/Diesel Hybrid (a) Capital Cost of 1MW Generating Capacity (US $) 400,000 756,000 (b) Total MW for Project 100 100 (c) = (a*b) Total Cost 40,000,000 75,600,000 (d) = (b*6250) Available Annual MWh 625,000 625,000 (e) Assumed Rental Cost per MWh (US $) 30 30 (f) = (e/8) Depreciation & Maintenance Adjustment 4 3 (US $) (g) = (e-f) Net Cost (US $) 26 18 (h) = (d*g) Implied Annual Rental Cost (US $) 16,406,250 10,937,500 (i) = (c/h) Years till Break Even 2.4 6.9

Source: Analyst estimates based on figures from: Roche (2017).True Cost of Electricity-Comparison of Costs of Electricity Gen- eration in Nigeria; Oviroh & Jen (2018). The Energy Cost Analysis of Hybrid Systems and Diesel Generators in Powering Selected Base Transceiver Station Locations in Nigeria; Salisu et. al. (2019). Assessment of technical and economic feasibility for a hybrid PV-wind-diesel-battery energy system in a remote community of north central Nigeria Note: Assumes 100MW running for 6250 hours over the course of one year. Straight-line depreciation over 8 years is taken as a proxy for maintenance cost savings.

FIGURE 27: Gross Debt to GDP and Total Debt Service as a % of GDP Higher sovereign indebtedness may lead to underinvest- ment in energy infrastructure

70 14

65 13

60 12

55 11 50

% of GDP 10 % of GDP 45

9 40

35 8

30 7

EM & Developing Economies Gross Debt

EM & Developing Economies Total Debt Service (rhs)

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES Source: IEA 2020

08 February 2021 23 Equity Research | Aggreko Plc

Competitive Landscape While Aggreko has begun to shift various technological components in-house, they are not an OEM. Aggreko sources engines from key partners, subsequently marketing and providing packaged solutions through their dedicated distribution channels. There have historically been few competitors on a global level, specifically able to deploy larger scale projects in emerging markets. APR Energy and Caterpillar Power Solutions have generally been the only two global competitors referenced by the previous management of Aggreko. However, in more recent times, management have noted an accelerating pace with regards to the number of OEMs entering the power rental market. This trend being driven by, among other things, a growing excess fleet. Cummins, Atlas CopCo, Kohler Power Solutions, and Generac Holdings to name a few. That said, through an international optic, the temporary power solutions market remains, to a large extent, fragmented. Especially when filtering for those able to mobilise more complex utility-like solutions in emerging markets. Notably, in Q1 2020 Atlas Corp announced the closing of their APR Energy acquisition. Atlas Corp being formed from a reorganisation of Seaspan, a leading independent charter owner and manager of containerships. APR is a key competitor to Aggreko’s PSU business, however the overall scale of APR, with 850MW of mobile gas turbines and ~700MW of diesel/gas generators in 2019, is considerably smaller than Aggreko’s fleet of close to 10,000MW. Worth noting is that around one fifth of Aggreko’s fleet consists of gas generators, compared to over 50% for APR. Although gas generators typically warrant a higher margin, it also does somewhat limit APR from competing with Aggreko for larger projects located in remote locations lacking cheap and reliable access to gas. From a different angle, incorporating the energy transition into this process, Aggreko’s management reference Caterpillar as their key traditional competitor, on a global basis, in their most recent strategic update (Nov-20). Zooming in on the playing field, to the national and local levels across developed markets. Aggreko’s differentiating factor revolves around their sector specialisation – enabling them to mobilise complex generator setups, in combination with complimentary verticals i.e. temperature control – that deviates from the vanilla solutions offered by generalist and local power rental companies. Over the last half-decade, the market has seen increased competition from generalist rental companies, such as Ashtead, United Rentals, Herc, and others, expanding their power offering and capability to offer a full- stack solution to customers. Additionally, competition has increased for local power rental companies deploying smaller scale projects. My view on the competitive landscape can be conceptualised via two dimensions, one for size and the other for complexity.

FIGURE 28: Competitive landscape abstraction Visualising where Aggreko sits in the competitive landscape Complexity Stable Competition Aggreko, Caterpillar, APR Energy

OEMs offering rental solutions & partnering with dealerships

Local power rental companies & Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES Generalist rental companies offering power solutions

Size

*Solely for illustrative purposes. Not to scale.

08 February 2021 24 Equity Research | Aggreko Plc

Taking the above into account the sheer upfront cost of amassing a fleet with Aggreko’s scale, global presence and sector specific expertise does, in my opinion, provide it with a moat for larger/complex projects. At the other end of the spectrum, increased competition from generalist and local power rental companies in addition to OEMs, with excess fleet, expanding their rental offering provides somewhat of a ceiling with regards to pricing expansion for traditional solutions. I believe that Aggreko’s mainline defence relates to their ability to implement newer technologies and offer a competitive low-emission/hybrid fleet. Hence, continuing with my abstraction, one could adda third dimension linked to the de-carbonisation megatrend. Competition on the emission pane remains highly fragmented, with Weston highlighting that many smaller companies focus solely on a single type of technology. I conjecture that, given their size, Aggreko is favourably positioned to exploit this current environment through bolt-on/tuck-in acquisitions, only selecting the best-in-class technologies and incorporating them into their fleet. Younicos being an example of the firm entering the battery storage space and integrating their traditional gensets with the Y-Cube. With this in mind, I believe that Aggreko still has scope to gain an edge in the smaller and less complex end of the market, that is currently experiencing higher levels of competition. This of course being contingent on the firm’s ability to gain a reputable track record in providing lower-emission solutions while remaining competitive on the cost front. Regulatory pressures must simultaneously provide some pressure on customers in certain industries to shift habits. I expect this to come in the form of minimum emission requirements of diesel generators. Such as the ones being continually stepped up in the US and Europe. More specifically, tier 4 diesel engine standards and the European stage V regulation. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 25 Equity Research | Aggreko Plc

Aggreko ­­­— Revenue In their recent Nov-20 strategic update, management provided guidance of between 5 and 10% CAGR over the medium term. I am mindful of the headwinds caused by the pandemic and am cautiously optimistic on vaccination and economic normalisation trajectories. That said, when factoring in the lower starting point, I believe the top-end of this range is achievable over the medium-term, with RS and PSI being the main engines of growth as PSU revenues are maintained. I adopt a ground-up approach to building revenue forecasts for Aggreko, informed by various overarching macro-drivers (touched on in the Temporary Power Market Overview section). I follow managements approach of separating out pass-through fuel from revenue given that this item is linked directly to commodity volatility and does not contribute to the underlying business. Below I provide some insight into pricing, volume, and the revenue mix for each of the three business segments. Given the severe economic fallout from the COVID-19 pandemic, I also note some considerations regarding key sectors and expectations. Rental Solutions Pricing & volumes: Pricing for rental solutions has increased over the past 5 years, commanding a significant premium over the PSI and PSU segments, in terms of the monthly price per MW (figure 29). As of H1 2020 (TTM) I estimate the average monthly price per MW was around GBP 45k. Down from GBP 48k in 2019. The premium is likely attributable to the region mix and short-term nature of contracts. There is likely also support from the degree of complexity and demand for adjacencies such as temperature control and so forth. As a comparison point, for a vanilla diesel generator solution in North America, Ashtead’s rate (online rate from their subsidiary Sunbelt Rentals) for 1MW in appears to be around GBP 20-25k per month. With an average contract life of around 3 months for this segment, and slight improvement seen in Q3 figures relative to the prior quarter, it would appear as though volumes have stabilised. Of course, while the shorter contract life does provide less of a cushion should we see any further adverse pandemic-related developments. As alluded to earlier, trying to accurately predict the trajectory of the pandemic and public policy is futile. Barring this uncertainty, for the near-term, I feel the question for rental solutions is centred on the stability of key sectors, in addition to the recovery prospects of the events business.

FIGURE 29: Rental solutions unit economics Pricing growth seen since 2015 has been dented from the pandemic

2015 2016 2017 2018 2019 2020E 2021E 2022E Revenue (mGBP) 618 629 720 822 833 652 709 841 Fleet size (MW) 2255 2268 2270 2469 2490 2415 2415 2463 Utilisation 55% 52% 56% 62% 58% 52% 56% 62% Av. Fleet on hire (MW) 1240 1179 1271 1531 1444 1256 1352 1527 Price per MW (mGBP) 0.50 0.53 0.57 0.54 0.58 0.52 0.52 0.55 Implied monthly price per MW 41,524 44,441 47,207 44,742 48,072 43,265 43,698 45,883 (GBP)

Source: Analyst estimates. Company data.

Key sector considerations: With rental solutions being more exposed to economic activity, the ensuing downturn from COVID-19 lockdowns, has halted the upward trajectory for both volumes (utilisation rates) and pricing. Petrochemical & refining

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES and oil & gas constitute around one third of revenues for this segment. Fortunately, a significant portion, around 70% in 2019, of the oil & gas revenue in Rental Solutions is derived from the Permian basin, which is the lowest cost shale basin in North America; with average break-evens in the low $40s. The rapid recovery in oil prices ,to just below the $50/bbl mark, in addition to a stabilisation in rig counts would suggest that the worst is over. Be that as it may, the increased volatility and leverage experienced across the energy sector could act as a moderate headwind on future investment in the sector, at least over the next couple of years. Management appear cognisant of this

08 February 2021 26 Equity Research | Aggreko Plc

and have stated that, although it will remain an important sector, they do not expect growth from American oil & gas going forward. I also feel elements of this narrative rings true for both the construction and manufacturing sectors. Cumulatively these sectors accounted for over half of revenue in the Rental Solutions segment between 2015-2019. 2020E for Rental Solutions & COVID-19: The COVID-19 pandemic has had a material, yet disproportionate, effect on the business. With over half of revenues being derived from developed markets in the Rental Solutions segment, which is generally more exposed to economic activity, maintaining stability in the petrochemical & refining and oil & gas sectors is key in the near-term. Especially as the events business remains dented from lockdown restrictions (figure 33). Based on the Q3-20 trading update and assuming a slowdown in the pace of the recovery, due to second and third pandemic waves across the globe, I expect rental solutions to finish down around 20% for 2020E. With utilisation rates dropping back to the low 50s. Medium-term expectations: I expect pricing to stabilise and grow from 2020E levels, albeit at a slower rate, back to just under GBP 46k/MW p.m in 2022E. I envisage average prices recovering past 2019 levels in 2024. Noting that the push for utilisation rates are more important as pricing dynamics are largely outside of management’s control. Management target a utilisation rate between 60-70%. Excluded from here is the potential of any pricing premiums related to hybrid/renewable solutions going forward. Power Solutions, Industrial Pricing & volumes: Lower pricing, around GBP 14,000/MW p.m. in 2019 by my estimates (figure 30), but higher volume in comparison to the rental solutions segment is suggestive of larger scale solutions with longer terms. Monthly pricing per MW, by my estimates, appears to have been relatively stable – floating around the GBP 14k level since 2015. Considering that contract lengths, excluding Eurasia, average around 5 years, with Eurasia contracts spanning between 2-10 years. I would expect pricing to hold up better than in the Rental Solutions segment. Yet, in the near-term there are similarities to Rental Solutions given that a significant portion of revenues are linked to the oil & gas sector. I feel that over the medium-term, whether we can expect to see price growth in this segment is heavily dependent on customers receptiveness to hybrid solutions and the competitive landscape.

FIGURE 30: Power solutions industrial unit economics Reasonably stable pricing, even amid the pandemic

2015 2016 2017 2018 2019 2020E 2021E 2022E Revenue (mGBP) 299 262 340 424 434 330 365 415 Fleet size (MW) 2756 2818 3252 3444 3724 3575 3575 3646 Utilisation 65% 63% 69% 71% 68% 58% 64% 68% Av. Fleet on hire (MW) 1791 1775 2244 2445 2532 2073 2288 2479 Price per MW (mGBP) 0.17 0.15 0.15 0.17 0.17 0.16 0.16 0.17 Implied monthly price per MW 13,909 12,299 12,626 14,451 14,284 13,284 13,284 13,948 (GBP)

Source: Analyst estimates. Company data.

Key sector considerations: Oil & Gas is by far the single largest sector exposure, accounting for a little over 40% of PSI revenues in 2019. Much of this exposure is concentrated to the Middle East and Russia, which represent around 50% of oil & gas revenues in the PSI segment. Although they have held up reasonably well through previous output cuts, according to OPEC upstream oil & gas investment plans Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES are expected to more than halve in 2021 relative to previous levels. With oil & gas contributing such a large chunk of revenues for PSI, just as in rental solutions, stability in oil & gas is vital in the near-term. Referring again to the recovery in oil prices and stabilisation in rig-counts (figure 23) does provide us some reassurance of the worst being over. On the other hand, OPEC signal that downstream capacity additions and investment in petrochemical and refining is expected to continue growing. Examples of megaprojects

08 February 2021 27 Equity Research | Aggreko Plc

being the Al Zour project in Kuwait and Jizan project in Saudi Arabia. This is encouraging to see and ties directly in with management’s ambitions to grow their petrochemical and refining business in PSI, which as of H1 2020 accounted for only around 2% of PSI revenues. The combination of growth prospects from mining and petrochemical & refining, in my opinion, provide ample scope to cushion the PSI segment from any drag in the challenged oil & gas sector. Layer the potential for one-off events and emergency deployments on top of this, in a scenario where stability is maintained in oil & gas, and the outlook for PSI seems rather robust. 2020E for PSI & COVID-19: Underlying revenue, excluding one-offs from Tokyo and the Rugby world cup contracts, was down 10% on the year as of the Q3 trading update. Comparing to the prior quarter, once adjusting for transitory shocks seen in Asia due to Singapore and India shutdowns, performance for PSI also appears to have found a bottom in the current environment. Order intake figures are supportive of this, with a H1 order intake of 233MW for H1 2020, up just under 5% relative to H1 2019. Africa has been a particular bright spot, with PSI revenues in this region up 9% for the first three quarters of 2020. The underlying performance even being slightly understated due to an off-hire in Egypt. This could be seen as a harbinger for increased mining activity in Africa, which is supportive of management’s expectations concerning the forward- looking revenue mix. While output cuts have dented oil & gas revenues the impacts appear muted for the time being. Some pain could continue as longer-term contracts roll off, however with oil prices back well above the break-evens of key regions with low production costs, such as the Middle East, it seems reasonable to assume that the drop off in PSI revenues has reached its floor. With the Rental Solutions segment being more transactional, I do not envisage the delta – in a recovery scenario – to be as high nor reactive for the PSI segment. Hence, I envisage the PSI segment ended 2020 in the low teens. Medium-term expectations: Following the downward re-pricing experienced in 2020, I expect prices to remain balanced for the next couple of years and resume a moderate upward trajectory from 2023 as other sectors such as mining and petrochemical & refining gain more traction in the revenue mix. I believe that overall fleet sizein terms of MW will remain reasonably stable, with growth coming primarily from the reclassification of PSU generators. While meeting the top end of management’s 60-70% utilisation target appears achievable, thanks to growth prospects in key sectors such as petrochemical & refining, it is a reasonable hurdle given the structural headwinds faced in oil & gas. As in rental solutions, excluded from here is the potential of any pricing premiums related to hybrid/renewable solutions going forward. Power Solutions, Utility Pricing & volumes: As has been mentioned, PSU is still a major part of the business and must stabilise. Constancy in the next year is of particular importance as the depressed demand experienced in RS and PSI reduces Aggreko’s ability to re-classify unused PSU gensets to RS and PSI without hampering utilisation. Between 2015 to 2019, I estimate that the average monthly price per megawatt for PSU contracts has fallen from around £13k to £11k. Volumes have also dropped by just over a third during this time, to an average of 2,405MW on hire in 2019. Fortunately, given the longer-term nature of PSU contracts, pricing and volumes have been relatively insulated from the effects of COVID-19 lockdowns. Furthermore, per the Q3 trading update, the off-hire rate has fallen to around 20%, implying average contract lengths have increased, moving closer to 5 years and up from the 3 years quoted in their 2019 annual report.

FIGURE 31: Power solutions industrial unit economics Reasonably stable pricing, even amid the pandemic

2015 2016 2017 2018 2019 2020E 2021E 2022E Revenue (mGBP) 584 564 531 342 319 286 299 302 Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES Fleet size (MW) 4837 4580 4244 4065 3700 3552 3481 3411 Utilisation 77% 79% 73% 66% 65% 62% 66% 68% Av. Fleet on hire (MW) 3724 3618 3098 2683 2405 2202 2297 2320 Price per MW (mGBP) 0.16 0.16 0.17 0.13 0.13 0.13 0.13 0.13 Implied monthly price per MW 13,067 12,990 14,283 10,622 11,053 10,832 10,832 10,832 (GBP) Source: Analyst estimates. Company data.

08 February 2021 28 Equity Research | Aggreko Plc

Order Intake: For the first half of 2020, PSU had an order intake of 237MW, which includes 165MW from Iraq and down slightly from 245MW in the first half of 2019. Annual order intake for PSU appears to have found some footing around the 400/500MW levels (Figure 40). This supports the conjecture that the PSU segment has reached an inflection point in terms of utilisation rates. In terms of existing projects, a major 200MW contract in the Ivory Coast was renewed in 2020, though management note a re-pricing. A notable long-term contract, 15-year 132MW in the Brazilian Amazonas, began mobilisation in 2019. It is also encouraging to see the adoption of lower-carbon solutions in this segment, evidenced by, among others, the 7MW hybrid project in Patagonia and 50MW HFO contract in Burkina Faso. 2020E for PSU & COVID-19: As of Q3 2020, PSU remains relatively unscathed from the pandemic. With underlying revenues down 6% for the year, a marginal improvement from -7% in the first half of the year. Although average MW on hire was down 9% on the year as of Q3 2020 to 2218MW (vs 2445MW for the same period in 2019), the segment did see a lower off-hire rate of 19% vs. 23% YoY. This being significantly lower than management’s general guidance around the 30-35% level. I believe that this supports the idea that contracts in this segment are, on average, increasing in length. Barring any unexpected contract wins or losses, I do not foresee any drastic deviations from current performance levels for the 2020 full year results for this segment. Medium-term expectations: I expect to see continued, albeit slower, reduction in the PSU fleet size, re-allocating excess equipment to higher margin areas within RS or PSI where demand permits. This further supports a reversal in the downward trend in utilisation for this segment. While the target of 80% utilisation, per the 2019 annual report, appears optimistic. I feel that the tailwind of a streamlined fleet could set the PSU segment utilisation %’age on the path to low 70s. Though, this will be particularly contingent on Aggreko’s ability to roll-out cost-effective hybrid solutions – due to their increased competitiveness over longer time horizons (figure 26). With large legacy contracts, such as Japan, Bangladesh and Argentina, now, for the most part, demobilised. My expectations are leaning towards the idea that the historical erosion in pricing will come to an end.

FIGURE 32: Revenue by segment, 2015 - H1 2020 FIGURE 33: Revenue by sector, H1 2020 vs H1 2019 Rental Solutions accounts for around half of revenue The Events business has been hit hardest from pandem- ic induced lockdowns

900 30%

20% 800 10%

700 0%

-10% 600 -20%

500 -30%

-40% mGBP 400 -50%

300 -60%

200

100

0 2015 2016 2017 2018 2019 TTM, H1 2020 Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

PSU PSI RS RS PSI

Source: Company data. Source: Company data.

08 February 2021 29 Equity Research | Aggreko Plc

FIGURE 34: COVID-19 monthly revenue model for 2020 FIGURE 35: Average MW on hire, by segment I believe the recovery seen over summer has slowed as RS and PSI have been picking up the slack for PSU over economies have re—entered lockdowns the last few years

80 8,000

70 7,000

60 6,000 50

40 5,000 mGBP

30 4,000

20 Megawatts 3,000 10 2,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1,000 Petrochemical & refining Building services & construction

Oil & gas Utilities 0 2015A 2016A 2017A 2018A 2019A Events Manufacturing

Mining Other RS PSI PSU

Source: Analyst estimates. Company data. Source: Company data.

FIGURE 36: Group monthly rental price per MW (GBP) FIGURE 37: Monthly rental price per MW, by segment (GBP) Average price charged per MW has been on a positive The shorter-term Rental Solutions segment has taken trajectory since Weston’s arrival in 2015 (pre-COVID) the largest pricing hit – led by oil & gas

21,000 60,000

20,500 50,000

20,000

40,000 19,500

19,000 30,000 GBP p.m. GBP p.m. 18,500 20,000

18,000

10,000 17,500

17,000 0 2013A 2014A 2015A 2016A 2017A 2018A 2019A H1 20 2015A 2016A 2017A 2018A 2019A H1 20 (LTM) (LTM)

Group RS PSI PSU

Source: Analyst estimates. Company data. Source: Analyst estimates. Company data. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 30 Equity Research | Aggreko Plc

FIGURE 38: Fleet utilisation (%) FIGURE 39: Power fleet capacity (MW) The pivot away from PSU is supported by lower average Underpinning the upward trajectory in pricing is the utilisation rates from 2015 pivot away from PSU over the years, into higher priced RS and PSI segments 85% 12,000 3.0%

80% 2.0% 10,000 75% 1.0% 70% 8,000

65% 0.0% 6,000 60% -1.0% Utilisation (%) Utilisation 55% 4,000 -2.0% YoY% Growth in Total Fleet Power Fleet Capacity(MW) 50% 2,000 45% -3.0%

40% 0 -4.0% 2013A 2014A 2015A 2016A 2017A 2018A 2019A 2015A 2016A 2017A 2018A 2019A

RS PSI PSU Group RS PSI PSU YoY Growth in Total Fleet

Source: Analyst estimates. Company data. Source: Analyst estimates. Company data.

FIGURE 40: Trailing twelve months order intake for PSU & PSI PSU order intake appears to have found footing around the 400/500MW level

1600

1400

1200

1000

800 MW

600

400

200

0 2015 1H 2016 1H 2017 1H 2018 1H 2019 1H 2016 2017 2018 2019 2020

PSU PSI

Source: Company data. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 31 Equity Research | Aggreko Plc

Aggreko ­­­— Margins

Gross Margin Primary components of Aggreko’s cost of sales are fulfilment costs (mobilisation and demobilisation costs) and a portion of the cost of inventories which is expensed within the cost of sales. Important to note is that IFRS 15 represented a significant accounting policy change in 2018, requiring fulfilment assets to be capitalised over the life of the contract. While over the longer-term and in a steady growth state the levels of amortisation will be comparable to the direct mobilisation expense. I prefer to look at an adjusted version of the gross margin to gain a cleaner picture on the underlying development - also this would need to be backed out for cash flows regardless. This involves adding back the capitalised fulfilment. I also net out pass-through fuels, as commodity volatility may distort margins over periods, from the cost of sales. On an adjusted basis, gross margins appear to have been declining since their 2008 peak, which was just shy of 74%. More recently, some stability appears to have been found around the 55% level, prior to the pandemic. This coincides with the stabilisation of utilisation rates seen prior to the pandemic (figure 38). Expensed cost of inventories have historically made up an average of 5.6% of revenue net of pass-through fuels and appears to have a reasonably stable relationship to this metric over time (figure 43).

FIGURE 41: Aggreko adj. gross margin (excl. IFRS 15) development FIGURE 42: Fulfilment assets and demobilisation provisions Expecting mean-reversion in the adj. gross margin In 2019 capitalised fulfilment assets comprised 12% of the total cost of sales*

75% 900 1,000

800 900 70%

700 800 65% 600 700

60% 500 600

mGBP 500 400

55% mGBP % of Revenue 400 300 50% 300 200

45% 200 100

100 40% 0 2005 2007 2009 2011 2013 2015 2017 2019 0 2015 2016 2017 2018 2019 Adj. Gross Margin 15-'19 Av. Gross Margin

Cost of Sales (rhs) Cost of Sales Capitalised Fulfilment Asset

Source: Company data. Analyst estimates. Source: Company data. NB. Gross margins are adjusted by netting out pass-through fuels from revenue and cost *When adding capitalised fulfilment assets back into the cost of sales of sales, while adding capitalised fulfilment assets for the period into the cost of sales. Net Revenue is revenue net of pass-through fuel. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 32 Equity Research | Aggreko Plc

FIGURE 43: Expensed cost of inventories as a % of Net Revenue FIGURE 44: Adj. gross margins and fleet utilisation relationship A reasonably stable relationship to revenues net of As fleet utilisation stabilises, so will the gross margin pass-through fuels

7.5% 70%

7.0% 69%

6.5% y = 0.573x + 0.3447 R² = 0.5801 68% 6.0%

5.5% 67% % of NetRevenue Adj. Gross Margin Gross Adj.

5.0%

66% 4.5% The correlation coefficient is statistically significant at the 5% level 4.0% 65% 2005 2007 2009 2011 2013 2015 2017 2019 55% 56% 57% 58% 59% 60% 61%

Cost of Inventories Average ± 1σ Group Fleet Utilisation

Source: Company data. Analyst estimates. Source: Company data. Analyst estimates. NB. Cost of sales are adjusted by netting out pass-through fuels from revenue and cost of sales, while adding capitalised fulfilment assets for the period into the cost of sales. Net Revenue is revenue net of pass-through fuel. The significance of the correlation coefficient is estimated using a t-test.

Operating Margin The primary components of operating expenses are split into administrative and distribution costs on the income statement. With other income being primarily driven by asset sales. Distribution costs are just over 30% of revenues, net of pass-through fuels, and appear to be rather elastic with regards to changes in net revenues (figure 45). On the other hand, administrative costs as a proportion of net revenues, which are comparably ‘stickier’, have grown by around GBP 50m to GBP 250m in 2019 since Weston took charge in 2015. Streamlining initiatives and the halting of employee bonus schemes amid the pandemic has helped reduce this by GBP 10m per the H1 2020 TTM figures. As a proportion of net revenue, administrative costs reached a high of 16% as revenues have remained broadly static since 2012 (figure 46). As touched on in previous sections, PSU has been a significant drag on the group’s performance, with lower utilisation, pricing and the roll-off of major contracts being major drivers. The extent of PSUs drag is visualised in figure 48, though this trend appears to have bottomed out around 2018. A trend that is supported by further streamlining initiatives, such as the GBP 50m cost-out programme for PSU expected by end of 2021. Looking at an alternative measure, average revenue per employee – by segment (figure 50), provides us with some comfort with regards to the streamlining efforts that have taken place in PSU. Though the fall in revenue per worker in the PSI segment does suggest that the mechanism of re-allocating PSU resources into PSI could be largely exhausted, at least for the time being as key PSI sectors, such as oil & gas, have taken a hit from the pandemic. The net gain/loss from the sale of PPE is relatively insignificant, making up and average of ~3% of the group’s operating profit over the past 5 years. As Aggreko embarks on a

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES fleet transition towards lower carbon solutions, one could expect to see supernormal volatility in this area over the shorter term. However, if we assume that any excess cash generated from this procedure is simply used to subsidise CAPEX requirements, the amounts as a proportion of future guided CAPEX likely amounts less than 100bps and thus I don’t envisage any material effects on business performance from this non-core component. Although margins seem to have bottomed out across all segments and found some support around the mid-teens (figure 52). I note that the recent inflection in the group’s

08 February 2021 33 Equity Research | Aggreko Plc

operating margin appears to have been largely catalysed by the change in accounting standards (IFRS 15 – capitalising fulfilment assets) with figure 51 evidencing the extent of this. As previously mentioned, the magnitude of net fulfilment asset capitalisation and amortisation is expected to stabilise over time, hence I do not see this as a red flag. Though it does underline a procedure which is likely to create variance between reported operating income and operating cash flows in the near-term. This point is accentuated by the fact that Aggreko operates a business model with an inherently high degree of operating leverage, historically between 3/4x by my estimates (figure 53). When adjusting for the IFRS15 accounting change, by adding back capitalised fulfilment assets into the cost of sales, it appears as though Aggreko’s adjusted operational leverage has recently increased beyond the historical norms – to around 5x by my estimates. This seems intuitive as both pricing and volume/utilisation tend to suffer in a downturn. That said, with the pandemic bringing forward various streamlining initiatives in combination with cost saving efforts, e.g. hiring freezes, halting bonuses, and reducing discretionary spending, I see some mitigation of the operating leverage drop into profits. I feel this does provide some asymmetry to the upside for Aggreko’s business, should we experience a synchronised economic recovery across key sectors through 2021 and into 2022.

FIGURE 45: Log differenced net revenue and distribution costs FIGURE 46: Administrative costs as a % of net revenue Changes in distribution costs can be approximated di- Administrative costs are comparably ‘sticker’ than distri- rectly from changes in net revenue bution costs and have increased to 16% of net revenues

35% 18%

30% 16%

25% 14%

12% 20% 10% 15% y = 0.9417x + 0.0141 R² = 0.8035 8% 10%

% of NetRevenue 6%

5% 4% Distribution Costs Distribution

0% 2% -10% 0% 10% 20% 30% 40% -5% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 -10%

-15% LTM, H1 2020 Net Revenue Administrative Expense

Source: Company data. Analyst estimates. Source: Company data. NB. Net Revenue is revenue net of pass-through fuel. NB. Net Revenue is revenue net of pass-through fuel. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 34 Equity Research | Aggreko Plc

FIGURE 47: Annual depreciation of PPE per MW available in fleet FIGURE 48: Operating margins (pre-exceptional items), by segment Approximately GBP 31k of annual depreciation per MW Management expect to deliver operating margins in the in the fleet high-teens over the medium-term

35,000 30%

33,000 25% 31,000

29,000 20% 27,000

25,000 15% GBP

23,000 Operating Margin 10% 21,000

19,000 5%

17,000

15,000 0% 2008 2011 2014 2017 LTM, H1 2020 2005 2008 2011 2014 2017 LTM, H1 2020 Av. Annual Depreciation per MW PSI PSU RS Group

Source: Company data. Analyst estimates. Source: Company data.

FIGURE 49: Average wages & salaries per employee FIGURE 50: Average revenue per employee, by segment Average wages and salaries per employee have grown at Management’s PSU streamlining initiatives appear effec- a compound rate just under 5% (2015-2019) tive when viewed through the revenue per worker optic

70,000 350,000

60,000 300,000

50,000 250,000

40,000 200,000 GBP GBP 30,000 150,000

20,000 100,000

10,000 50,000

0 0 2005 2007 2009 2011 2013 2015 2017 2019 2015 2016 2017 2018 2019

Av. Wages & Salaries PSI PSU RS

Source: Company data. Analyst estimates. Source: Company data. Analyst estimates. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 35 Equity Research | Aggreko Plc

FIGURE 51: Operating margins - effect of IFRS 15 FIGURE 52: Operating margins, by segment Reported margin recovery catalysed by IFRS accounting Stability seen around the mid-teens changes (fulfilment asset capitalisation)

35% 30%

30% 25%

25% 20%

20% 15%

% of Revenue 15% 10% Operating Margin

10% 5%

5% 0% 2005 2008 2011 2014 2017 LTM, H1 0% 2020 2015 2016 2017 2018 2019 LTM, H1 2020

Operating Margin Incl. capitalised fulfilment asset costs PSI PSU RS

Source: Company data. Analyst estimates. Source: Company data. Analyst estimates.

FIGURE 53: Operational gearing estimate Higher operating leverage potentially obscured by new accounting treatment – Though this does create at- tractive asymmetry to the upside should gross margins stabilise and revenue growth return

6.00

5.00

4.00

3.00

Operational Gearing 2.00

1.00

0.00 2005 2008 2011 2014 2017 LTM, H1 2020

Operational Gearing Adj. Operational Gearing

Source: Company data. Analyst estimates. NB. Adj. Gross Margin / Adj. Operating Margin. Cost of sales are adjusted by netting out pass- through fuels from revenue and cost of sales, while adding capitalised fulfilment assets for the period into the cost of sales. Net Revenue is revenue net of pass-through fuel. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 36 Equity Research | Aggreko Plc

Positive Margin Drivers Negative Margin Drivers Natural disasters and emergency work typically Increased competition – For example, OEMs with commanding higher margins due to the time- excess fleet enter the market and drive down sensitive nature pricing Aggreko’s will benefit from its high degree of Soft macroeconomic environment following operational gearing should we see a strong lockdowns from the COVID-19 pandemic – rebound in economic activity and effective Aggreko’s high degree of operating leverage COVID-19 vaccinations means the business is particularly exposed to a cyclical downturn in key sectors such as oil & gas Transitioning fleet to lower carbon solutions – There is still limited evidence to suggest that, in Regulatory tailwinds support volume growth and general, customers are willing to pay a premium the potential for premium pricing for hybrid solutions, which are typically more expensive to deploy Segmental focus – as economies re-open key Further delays in re-opening economies and sectors within the higher margin rental solutions societies will continue to suppress margins, segment, such as Events, should aid margin specifically in the higher margin rental solutions expansion back from the pandemic lows of 2020E segment

Aggreko ­­­— Cashflow

CAPEX A large portion of Aggreko’s operational cash flows are directed towards fleet maintenance and development. The power fleet size, in terms of total MW capacity, stabilised from 2012 and since then has hovered between 9,000/10,000MW (figure 54). The rental fleet is depreciated over 8-12 years, this has been the case since 2016, prior to which depreciation was taken over 8-10 years. The change was driven by an increase in the useful life of transformers and switchgears to 12 years from 8 years. This adjustment to the useful life of PPE has not materially changed the relationship between PPE CAPEX and revenues (figure 55). Between 2015-2019, depreciation of PPE has amounted to around 15% of revenues, a level that appears reasonably consistent following the period of supernormal growth between 2008-2012. While operating in a capital intensive industry, Aggreko does have some shorter-term flexibility with regards to CAPEX, as can be evidenced from changes to CAPEX spending during previous times of uncertainty (figure 55) and more recently the COVID-19 pandemic. That said, over the longer-term, persistently low levels of CAPEX, relative to depreciation, will lead to either a reducing fleet size or material averaging up of the fleet age, both of which could prove problematic as it pushes CAPEX further out into the future. As touched on in the Fleet Overview section, Heath Drewett has responded to questions on this matter (e.g. in their interim 2018 earnings Q&A) and does not envisage that recent CAPEX and depreciation mismatches will necessitate a ramp up in CAPEX in the future. Supporting this idea are management indications that part of their operational streamlining efforts over the years have flowed directly through to a reduction in servicing costs, which structurally reduces CAPEX requirements per generator. Expectations: Management have guided towards a medium to longer term CAPEX expectation in the region of GBP 250m-300m. With GBP 86m of fleet CAPEX in H1 2020, I estimate GBP 160m of CAPEX for 2020 and an increase to GBP 275m in 2021 as lockdown restrictions begin to ease. I believe that the back-end of 2021 and 2022 will be the primary inflection point as demand dynamics normalise across key markets and estimate a fleet CAPEX of GBP 300M for 2022, rising slightly above this in 2023 and onwards. The top-end of guidance is taken as it is felt that this is necessary amid the energy transition to retain market leadership and achieve growth targets. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 37 Equity Research | Aggreko Plc

FIGURE 54: Power fleet capacity (MW) FIGURE 55: PPE CAPEX as a proportion of revenues Fleet size has been relatively stable since 2012 hovering Under Weston’s leadership PPE CAPEX has averaged 15% between 9,000-10,000MW of revenues

12000 35% Management have CAPEX flexibility to preserve cash during periods of 30% 10000 uncertainty

25% 8000

20%

6000 % MW 15%

4000 10%

2000 5%

0 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 H12020 H1 2020 H1

Power Fleet Capacity CAPEX/Revenue Average under Weston (2015-Present)

Source: Company data. Analyst estimates. Source: Company data. Analyst estimates.

FIGURE 56: YoY difference between PPE CAPEX and PPE depreciation However, prolonged periods of underinvestment could simply be pushing out CAPEX spend, should fleet size need to be maintained

250

200 Fleet expansion

150

100

50

0

-50

PPE CAPEX Less Depreciation (mGBP) Fleet reduction -100

-150 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 H1 2020 H1

Series1

Source: Company data. Analyst estimates. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 38 Equity Research | Aggreko Plc

Working Capital

The relationship between net working capital and revenues has been reasonably hard to predict over the past decade with no clear relationship to the top-line. Trade & other receivables (labelled as Debtors in figure 59), are by far the single largest working capital component. Trade receivables net of provisions have historically (2008-2019) accounted for around two thirds of the total receivable while prepayments & accrued income have averaged around 25% of the total. Prior to 2012, receivables and payables largely offset each other, leaving inventories as the primary use of working capital. However, as can be seen in figure 57, this changed from 2012 and underscores the importance of managements recent efforts on debtor collections. Material progress was made in 2019 and following the pandemic induced write-downs (covered more in-depth below) inventories are again a main use of net working capital. Inventories as a percentage of revenues have increased from their average of around 10% between 2008-2014. Since 2015 this measure has averaged just under 14%, though it has been on a downward trajectory since its peak of 16.3% in 2016 (figure 63). Bad debtors/Provisioning: The power rental market is burdened with unpredictable payment behaviour, especially across emerging markets. As such, debtor collections have been under increased scrutiny since Drewett’s arrival as CFO in 2018. These efforts being catalysed by the increasing proportion of past due receivables (figure 60). 2019 saw strong improvements on collections, specifically for the largest bad- debtor segment, PSU. Although the COVID-19 pandemic will likely dent the positive momentum here, management announced an impairment of GBP 69m in the 2020 interim report, which has reduced the carrying value of the lowest quality debtors (legacy debts in parts of Africa, Venezuela, Yemen and Brazil) to zero. As can be seen in figure 62, the impairment implies a rough halving of the lowest quality bucket of receivables (per FY2019 figures and assuming all impairments relate to this bucket). Provisioning relates primarily to PSU debtors. I estimate that PSU provisions, as a proportion of the total, remains around 70% (Adding the H1 2020 GBP 56m impairment to existing PSU provisions of GBP 61m in 2019 and dividing by total provisions of GBP 168m as of H1 2020). Following the impairment, as of June 2020, close to 90% of the PSU provisions relate to 16 customers. Aggreko’s net exposure (i.e. exposure after accounting for provisions) to the largest is between USD 10-20m, while the rest have a net exposure below USD 10m. It is encouraging to see that the number of bad debtors with net exposures greater than USD 10m has decreased to 1 from 5 as a result of the write-downs. Furthermore, I believe that businesses like Aggreko possess a unique degree of control over debtor behaviour due to the materiality of their last resort - which is to pull the plug on a customer’s source of power. Hence, assuming that the remaining customers continue to rely on Aggreko’s power solutions, although the pandemic may lead to less liquid customers deferring payments, I do not envisage further material impairments and view the provisioning as adequate. Expectations: My estimates, driven by assumptions in DSO, DOH and DOP (as can be seen in figure 58), lead to a net working capital CAGR of 12.5% between 2020E-2025E, slightly above the forecast 7.8% revenue CAGR. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 39 Equity Research | Aggreko Plc

FIGURE 57: Payables / Receivables -1 FIGURE 58: DSO, DOH, and DOP Receivables and payables are starting to offset eachoth- Expect a stabilisation in receivables and payables ratios er again, after impairments and improving collections to continue

0% 250 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 H1 2020 H1 -10% 200

-20% 150 Days

-30% 100

Pro-forma estimates 50 -40%

0 -50% 2012A 2014A 2016A 2018A 2020E 2022E 2024E

Days sales outstanding (DSO) Days inventory on hand (DOH)

-60% Days of payables (DOP)

Source: Company data. Analyst estimates. Source: Company data. Analyst estimates. Days sales outstanding (DSO), Days of inventory on hand (DOH), and Days of payables (DOP) 365 Days assumed for a period FIGURE 59: Net working capital development estimates FIGURE 60: Credit quality of trade receivables Increase in NWC will grow at a premium to revenues Collections have improved since 2018

1,200 700

1,000 600 800

600 500

400 400

mGBP 200 mGBP 0 300

-200 2020E 2021E 2022E 2023E 2024E 2025E 2012A 2013A 2014A 2015A 2016A 2017A 2018A 2019A 200 -400

-600 Pro-forma estimates 100 Creditors

Debtors 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 Inventories

Net Working Capital - Analyst Estimate Fully performing Past due Impaired

Source: Company data. Analyst estimates. Source: Company data. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 40 Equity Research | Aggreko Plc

FIGURE 61: Net trade receivable and provisions FIGURE 62: Ageing of receivables Material increase in provisioning following COVID-19 H1 2020 impairments have roughly halved the worst quality bucket of receivables

700 200

180 600 160

500 140

120 400 100 mGBP mGBP 300 80

60 200 40

100 20

0 0 Not past due < 30d due > 30d; < 60d > 60d; < 90d > 90d due 2008 2010 2012 2014 2016 2018 H1 2020 due due

Net Trade Receivable Provision Net trade receivable - 2019 Written Down in H1 2020*

Source: Company data. Source: Company data. Analyst estimates * Assuming the 69m impairment is applied solely to the >90d due bucket

FIGURE 63: Inventories A GBP 36m write-down was taken to inventories in H1 2020

300 17%

250 15%

200 13%

150 11% mGBP % of Revenue

100 9%

50 7%

0 5% 2008 2010 2012 2014 2016 2018 H1 2020

Inventories % of Net Revenue (rhs)

Source: Company data. Analyst estimates. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 41 Equity Research | Aggreko Plc

Liquidity Aggreko’s liquidity, per the quick ratio, has been steady increasing above 1 since 2013. Following the economic fallout from the COVID-19 lockdowns, this ratio has fallen below 1. However, when looking at the underlying composition it is encouraging to see that the proportion of cash continues to increase (figure 64). Although the quick ratio has dropped below 1 Aggreko maintains, in management’s and my view, sufficient access to liquidity over the medium-term. At the end of June 2020, Aggreko had GBP 1,088m of committed facilities to draw upon. GBP 856m of which do not mature in 2021. According to management, GBP 823m of this is immediately available which implies over 1.2x of coverage over the current liabilities as of the interim 2020 report. Further to this, through the Bank of England’s COVID Corporate Financing Facility, Aggreko also has the ability to issue commercial paper with up to a 12-month term. This facility is due to expire in Feb-21, however in the event of another drastic economic downturn, one would expect a decent probability of this type of facility to be extended. Also worth noting, as of the interim report Aggreko’s COVID-19 induced streamlining efforts have meant that the company has not needed to access any of theUK’s government-funded furlough schemes. Dividends Amid the energy transition, Aggreko’s primary use of cash will be directed towards lowering the fleet’s carbon footprint and investing in technologies while simultaneously retaining the company’s market leading position. Although the return of capital is secondary to the aforementioned growth objectives, in the Q3 2020 strategic update management re-affirmed their commitments to returning surplus capital to investors in the form of cash dividends. Management seeks a dividend coverage ratio around 2.0x. As can be seen in figure 65, Aggreko has a strong track record of returning excess capital to shareholders. Expectations: I expect the dividend to grow in-line with earnings while remaining roughly covered by 2x earnings. Given near-term uncertainties and to smooth the resumption in dividends, my model assumes a four-year adjustment factor.

FIGURE 64: Quick ratio (cash and receivables over current liabilities) FIGURE 65: Dividend coverage and EPS Lower total liquidity, however an increasing proportion Strong track record of returning capital to shareholders, of cash provides cushioning amid the pandemic with management targeting a dividend cover of ~2x. Policy flexibility in times of crisis appears prudent 1.8 120 7x 1.6 6x 100 1.4 5x 80 1.2 4x 1.0 60 3x 0.8 exceptional items, pence) items, exceptional

- 40 Dividend Coverage 2x 0.6 Ratio to Current Liabilities Current to Ratio

EPS (pre 20 1x 0.4 0 0x 0.2 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES 0.0 2012 2013 2014 2015 2016 2017 2018 2019 H1 2020 Retained Earnings Dividends Cash & equivalents Trade & other receivables Dividend Coverage (pre-exceptional items, rhs)

Source: Company data. Analyst estimates. Source: Company data. Analyst estimates.

08 February 2021 42 Equity Research | Aggreko Plc

Acquisitions Since inception, Aggreko has performed numerous bolt-on and tuck-in acquisitions focusing on gaining either distribution capabilities in new/underserved geographies or augmenting specific capabilities for key sectors. Since 2000 Aggreko has averaged 1 acquisition per year. The average acquisition price since Weston took charge in 2015 is, by my estimates, just shy of GBP 20m. This is down from an estimated average of GBP 35m between 2000-2014. However, this time-frame includes two large acquisitions that deviate from Aggreko’s modus operandi of smaller bolt-on/tuck-in acquisitions, typically adding around 50bps to revenue by my estimates. Aggreko’s two largest acquisitions are GE Energy Rentals in 2006 and Poit Energia in 2012. The former took out one of Aggreko’s few global competitors, increased fleet size by 30% and added around 13% to revenues. Whereas the Poit Energia acquisition contributed to Aggreko’s distribution capabilities, particularly across Latin America. By my estimates, Goodwill tends to be around one third of consideration paid and I do not see any red flags that would point to value destructive M&A tendencies. Considering that Aggreko can simply increase CAPEX to grow the fleet while maintaining control over the shape of the fleet i.e. generator fuel/size etc…, any larger acquisition where the target has a material fleet must always be weighed with the opportunity cost of simply increasing CAPEX. I feel that this attribute acts as a natural prophylactic against larger deals and encourages Aggreko to focus on smaller acquisitions that enhance intangible capabilities. Expectations: Given the relatively small size of Aggreko’s bolt-on/tuck-in acquisitions and marginal revenue contribution, I take a parsimonious approach and do not explicitly assume any acquisitions in my model’s pro-forma figures.

Purchase Revenue Year Target Type Price (mGBP) Goodwill Contribution* Notes

2000 Ingersoll-Rand Acquisition 8.6 #N/A North American rental fleet of oil-free air compressors and accessories

2002 Compresores Acquisition 0.3 #N/A Entering the Spanish power rental market Esteve S.A.

2005 Prime Energy Acquisition 3 #N/A Rental fleet acquired included more than 150 chillers, air conditioning units and cooling towers. Strengthening North American temperature control solutions

2006 GE Energy Acquisition 112 47 12.9% Acquisition of a key competitor to Aggreko and increased fleet size by around 30% Rentals

2008 Power Plus Acquisition 16 5 0.6% Power Plus provides specialised rental power solutions to businesses in the Athabasca Oil Rentals & Sales Sands in Alberta and Saskatchewan

2009 Cummins India Acquisition 4 1 0.3% Creating the foundations for entering the Indian power rental market

2010 Northland Power Acquisition 17 7 0.6% Provider of power solutions for the oil and gas exploration and production market in the Services Rocky Mountain region of the United States

2011 N.Z. Generator Acquisition 14 5 0.4% A leading provider of temporary power solutions in New Zealand and the Pacific Islands Hire

2012 Poit Energia Acquisition 141 88 3.0% Strengthens Aggreko’s business in South America, both in terms of geographic footprint and in accessing sectors to which Aggreko previously had limited exposure.

2014 Golden Triangle Acquisition #N/A 0.2% Expanding the UK footprint in rental power solutions throughout Merseyside, Cheshire and Generators North Wales

2015 ICS Group Acquisition 18 7 0.4% ICS Group is well known for their temporary heating, concrete cure, and ground thaw solutions that cater to many of Aggreko’s key sectors

2016 DryCo Acquisition 22 7 1.0% A specialist in moisture control,drying, heating and cooling applications within the shipping, manufacturing, food processing, construction and industrial painting industries in North America

2017 Younicos Acquisition 47 34 1.3% A global market leader in the development and deployment of hybrid-integrated energy systems.

2017 KBT Acquisition 25** (2) 0.7% Indonesia-based power rental company,

2017 TuCo Acquisition 3 1 0.1% TuCo specialises in providing temporary heat and air conditioning equipment to the construction, industrial, commercial and special events industries

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES 2018 A Contract Acquisition 21 2 0.6% Specialises in the rental of medium and high voltage electrical distribution equipment in Electric Rentals North America.

2018 Generator Hire Acquisition 3 1 0.1% GHS specialises in general rental equipment in Australia Service

2018 Origami Energy 14% Stake 9 #N/A Origami has developed intelligent software that optimises the revenue earning capability of grid connected assets.

Source: Company reports. Analyst estimates. *Analyst estimates. ** Maximum provision (incl. earn-out)

08 February 2021 43 Equity Research | Aggreko Plc

Aggreko ­­­— Balance Sheet

Leverage & Covenants Due to the high operational leverage, inherent in the power rental business, management have historically (and continue) to be committed to low levels of financial gearing. Management target a through-the-cycle net debt to EBITDA of 1.0x. Acknowledging that it may slightly deviate from the target over in the short-term should tactical opportunities arise. When looking at figures from 2006, I see that debt covenants remain unchanged at a maximum of 3x net debt to EBITDA and a minimum EBITDA interest coverage of 4x. These covenants remain exclusive of IFRS16 leases accounting changes. As can be seen in figure 66 and 67, ample headroom remains in both metrics, even when adjusting for IFRS16 effects. Furthermore, the recent improvements in FCF coverage is a testament to Aggreko’s CAPEX flexibility over the shorter-term. Expectations: As of H1 2020, management reported a net debt/EBITDA of 0.9x and an interest coverage of 14x. My base case assumes no debt issuance and I take the H1 2020 maturity profile of borrowings to explicitly estimate debt repayments. Based on my assumptions, my forecasts suggest that net debt will drop below 0.5x in 2023.

FIGURE 66: Financial gearing (2006 - H1 2020, TTM) FIGURE 67: Interest coverage, (2006 - H1 2020, TTM) Ample covenant headroom from a gearing perspective Although interest coverage has decreased from >20x, coverage remains comfortably above minimum cov- enant levels – this view is further supported by the 4x increased FCF coverage

3x 60x

50x 3x

40x 2x

30x 2x

Financial Gearing Financial 20x 1x

10x Interest Coverage Interest 1x 0x 0x 2006 2009 2012 2015 2018 2006 2009 2012 2015 2018 -10x

Net Debt / EBITDA (IAS17) (+) IFRS16 effect -20x Covenant (Max 3x) Interest Coverage (-) IFRS16 effect

Source: Company data. Analyst estimates. Covenant (Min 4x) FCF Interest Coverage (IFRS16) FInancial gearing = Net debt / EBITDA

Source: Company data. Analyst estimates Interest coverage = EBITDA / net finance cost Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 44 Equity Research | Aggreko Plc

FIGURE 68: Maturity profile of financial borrowings FIGURE 69: Split of non-current assets No pending maturity wall faced in post-pandemic recov- PPE makes up a lower proportion of total non-current ery years 2022/23 assets

300 100%

90%

250 80%

70%

200 60%

50%

150 40% mGBP 30%

100 20%

10%

50 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 H1 2020 0 (TTM) 2020/2021 2022 2023 2024 2025 2025+ Other intangible assets Rental Fleet Goodwill

Borrowings due % of NCA Other PPE Fulfilment Asset

Source: Company data. Analyst estimates. Source: Company data.

Non-Current Assets Aggreko’s non-current assets made up 60% of total assets as of June 2020. Although this has declined from around 67-70% pre-2012, it has recovered from the mid-fifties low-point in 2018. PPE continues to make up the majority of non-current assets (circa 76% as of H1 2020), albeit a lower portion relative to previous periods (figure 69). I am not particularly surprised by this trend as Aggreko has begun to offer hybrid solutions and further integrate technology into their fleet through the Younicos acquisition in 2017. Furthermore, IFRS15 changes leading to the inclusion of fulfilment assets has also supported this trend. Defined Benefit Pension Aggreko’s defined benefit scheme has been closed to all new employees from April-2002. Since then, employees can join the defined contribution scheme. Per the 2019 annual report, the fair value of assets was GBP 114m and the present value of defined benefit obligations (PVDBO) equalled GBP 110m, leaving an estimated GBP 4m funding surplus recognised on the balance sheet. A 50bps change to the discount rate would result in a GBP 14m increase in the PVDBO, while the delta for a 1 year change in longevity (lifespans) is GBP 4m. The duration of the PVDBO is approximately 25 years and total benefit payments are expected to be GBP 2m for the next 10 years. Viewing the defined benefit scheme from a different angle, the company estimated that the liabilities could be settled for GBP 137m, on a buyout basis, which would equate to a GBP 23m shortfall in 2019. On this metric, I do not see any material off-balance sheet liability issues stemming from the defined benefit scheme. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 45 Equity Research | Aggreko Plc

Trading Update January 2021 trading update: Management expect to deliver a profit before tax for 2020 slightly ahead of the top end of the previous guidance range (GBP80-100m). Strong cash performance in H2 contributed to a reduction in net debt by GBP 200m, with net debt / EBITDA ending the year below 1x. Management retain 2021 profit before tax guidance of GBP 170-190m. Olympics contract renewal: In January 2021, Aggreko also announced the revision to their Olympics contract with the organising committee of the Tokyo Olympic and Paralympic Games. The contract reportedly reflects the impact of the postponement. Guidance currently assumes that games will go ahead as planned in 2021. TDR takeover offer: On February 5, Aggreko confirmed speculation of a takeover offer. A consortium, spearheaded by TDR Capital LLP and I Squared Capital (US) LLC, are reported to be in discussions regarding a cash offer of 880 pence per share (adjusted for any dividend declared or paid). This represents a 39% premium from the 645p closing price the day prior to the announcement, 04/02/21. The consortium has until March 5 to announce a firm intention to make an offer under takeover rules. Upcoming Events • 01/03/2021: FY 2021 earnings release • 05/03/2021: Deadline for a response regarding TDR’s takeover offer • 08/06/2021: H1 2021 earnings release Estimates vs. Consensus

2020E 2021E 2022E 2023E Consensus estimates EPS, Adj+ (GBp) 22 45 44 47 Revenue 1,368 1,597 1,527 1,546 EBITDA 432 515 502 505 Net Income Adj+ 58 114 110 121 Net Debt 362 339 290 400 Free Cash Flow 161 63 100 47 CAPEX (203) (262) (283) (301)

My estimates: EPS, Adj+ (GBp) 25 43 62 71 Revenue 1,312 1,417 1,603 1,728 EBITDA 417 481 559 595 Net Income Adj+ 64 110 159 182 Net Debt 336 346 350 284 Free Cash Flow 261 11 32 115 CAPEX (160) (275) (300) (300)

Source: Bloomberg consensus estimates as of 08/02/2021 & Analyst estimates. *mGBP unless otherwise stated. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 46 Equity Research | Aggreko Plc

Valuation The target price is arrived at by taking the average between discounted cash flow estimates and a multiple based approach on our 2022E figures. While I look at both rental equipment peers and a handful of OEMs offering rental equipment, my focus is predominantly on the former group. Taking the estimated 2022 figures and assuming slight arbitary discounts to the historical average of rental equipment peer multiples suggests Aggreko remains undervalued today, even from the recent proposed takeover price of GBp 880 per share. This is however contingent on my underlying assumption of a recovery in both pricing and utilisation rates from 2021. Key base case assumptions Revenue builder: I forecast financials 5 years out by making assumptions about key drivers of the three segments RS, PSI and PSU. Pricing and utilisation (volume) estimates are made by the analyst to generate top-line pro-forma figures.

Revenue Builder 2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E

Rental Solutions RS Segment Revenue✝ 618 629 720 822 833 652 709 841 935 1,013 1,069 % Δ 1.8% 14.5% 14.2% 1.3% -21.7% 8.8% 18.6% 11.2% 8.3% 5.6%

Utilisation 55.0% 52.0% 56.0% 62.0% 58.0% 52.0% 56.0% 62.0% 65.0% 67.0% 68.0% Fleet Size (MW) 2,255 2,268 2,270 2,469 2,490 2,415 2,415 2,463 2,513 2,563 2,614 YoY%Δ in Fleet Size 0.6% 0.1% 8.8% 0.8% -3.0% 0.0% 2.0% 2.0% 2.0% 2.0%

Av. Fleet on Hire, MW 1,240 1,179 1,271 1,531 1,444 1,256 1,352 1,527 1,633 1,717 1,778 % Δ -4.9% 7.8% 20.5% -5.7% -13.0% 7.7% 12.9% 6.9% 5.1% 3.5%

Price (£m per MW) 0.50 0.53 0.57 0.54 0.58 0.52 0.52 0.55 0.57 0.59 0.60 Monthly Rental Price per MW (GBP) 41,524 44,441 47,207 44,742 48,072 43,265 43,698 45,883 47,718 49,150 50,133 % Δ 7.0% 6.2% -5.2% 7.4% -10.0% 1.0% 5.0% 4.0% 3.0% 2.0%

Power Solutions, Industrial PSI Segment Revenue✝ 299 262 340 424 434 330 365 415 453 476 509 % Δ -12.4% 29.8% 24.7% 2.4% -23.8% 10.3% 13.8% 9.2% 5.1% 7.0%

Utilisation 65.0% 63.0% 69.0% 71.0% 68.0% 58.0% 64.0% 68.0% 70.0% 70.0% 72.0% Fleet Size (MW) 2,756 2,818 3,252 3,444 3,724 3,575 3,575 3,646 3,719 3,793 3,869 YoY%Δ in Fleet Size 2.2% 15.4% 5.9% 8.1% -4.0% 0.0% 2.0% 2.0% 2.0% 2.0%

Av. Fleet on Hire, MW 1,791 1,775 2,244 2,445 2,532 2,073 2,288 2,479 2,603 2,655 2,786 % Δ -0.9% 26.4% 9.0% 3.6% -18.1% 10.3% 8.4% 5.0% 2.0% 4.9%

Price (£m per MW) 0.17 0.15 0.15 0.17 0.17 0.16 0.16 0.17 0.17 0.18 0.18 Monthly Rental Price per MW (GBP) 13,909 12,299 12,626 14,451 14,284 13,284 13,284 13,948 14,506 14,941 15,240 % Δ 14.5% -1.2% -7.0% 0.0% 5.0% 4.0% 3.0% 2.0%

Power Solution, Utility PSU Segment Revenue✝ 584 564 531 342 319 286 299 302 296 290 284 % Δ -3.4% -5.9% -35.6% -6.7% -10.3% 4.3% 1.0% -2.0% -2.0% -2.0%

Utilisation 77.0% 79.0% 73.0% 66.0% 65.0% 62.0% 66.0% 68.0% 68.0% 68.0% 68.0% Fleet Size (MW) 4,837 4,580 4,244 4,065 3,700 3,552 3,481 3,411 3,343 3,276 3,211 YoY%Δ in Fleet Size -5.3% -7.3% -4.2% -9.0% -4.0% -2.0% -2.0% -2.0% -2.0% -2.0%

Av. Fleet on Hire, MW 3,724 3,618 3,098 2,683 2,405 2,202 2,297 2,320 2,273 2,228 2,183 % Δ -2.9% -14.4% -13.4% -10.4% -8.4% 4.3% 1.0% -2.0% -2.0% -2.0%

Price (£m per MW) 0.16 0.16 0.17 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13 Monthly Rental Price per MW (GBP) 13,067 12,990 14,283 10,622 11,053 10,832 10,832 10,832 10,832 10,832 10,832

Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES % Δ -0.6% 10.0% -25.6% 4.1% -2.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Source: Analyst estimates. + Segment revenue is net of pass-through fuels

08 February 2021 47 Equity Research | Aggreko Plc

Pass-through fuels: I assume that an additional 15% of PSU revenue is generated from pass-through fuels. While this element is often volatile, I make the simplifying assumption by taking the historical (2015-2019) average of pass-through fuel as a % of PSU revenue. Then, as this is a pass-through item and I am more concerned with underlying trends I make an arbitrary haircut down to 15% from 20%. Margins: Adjusted Gross margins are assumed by adjusting for IFRS15 (removing the capitalisation of the fulfilment asset) in addition to backing out the pass-through fuels to arrive at, what I believe is, a cleaner gross margin figure. The capitalised fulfilment asset is estimated separately and then added to arrive at the estimated IFRS15 gross margin. Underlying gross margins are expected to rebound from 2021. Operating costs are split by administrative costs and distribution costs. The former are assumed to be GBP 230m, guided by 2020 interim figures, and subsequently grow at 3% per annum. Distribution costs appear to have a degree of variability in relation to revenues, as such I assume distribution costs make up 30% of net revenues. This is in-line with the historical (2015-2019) relationship. Depreciation & amortisation: Given that rental fleet depreciation is the largest component in this line, my depreciation is assumed to be GBP 30,000 per MW of the total fleet. This figure is in line with recent estimates from 2019 and the2020 interim. Given the relative immateriality of the amortisation of intangibles, I feel it is parsimonious to simply assume this line at zero going forward. Debt and cost of financing: I estimate a simplified debt schedule based on the 2020 interim maturity profile of borrowings. As I do not wish to speculate on future debt issuance, I simply assume debt is paid down according to the maturity profile. An assumption is made with regards to the split of current and non-current in order to arrive at the balance sheet estimates. The effective financing costs are assumed to have fallen further from 2019 levels following the post-pandemic drop in rates. I assume 5% going forward. For conservatism and given the low savings rates, I assume no finance income going forward. Effective tax rate:The effective tax rate is assumed to be 35%, in line with 2019 levels and management guidance. Working capital: Working capital estimates are made via assumptions in Days inventory on hand (DOH), Days sales outstanding (DSO) and Days of payables (DOP) assumptions. These assumptions, in-line with historical levels, are visualised in the Working Capital section (figure 58). CAPEX: In order to maintain the fleet size and realise growth targets I believe CAPEX needs to be ramped up in 2021 and move towards the higher end of management’s guidance, to GBP +300m in 2024 and onwards. Capital returns: I assume management’s targeted 2.0x dividend coverage ratio, with an adjustment taking place over 4 years in order to smooth this element (adjustment factor of 0.25). DCF Valuation Based on my base-case assumptions with a WACC of 7.7% and terminal growth rate of 2.5%, I estimate the NPV of Aggreko’s equity to be GBp 900 (pence). Given uncertainties surrounding the economic rebound following vaccination roll-outs, I feel estimates err on the cautiously-optimistic side. This is evidenced in the below-average forward multiples from 2023. Relative Value - multiples Taking the 2022 figures from my forecasts, I assume a P/E multiple of 15x, which is in- line with Aggreko’s historical average between 2015-2019 and in-line with the current Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES multiple for equipment rental peers. An EV / Fwd EBITDA multiple of 5x and EV / Fwd EBIT multiple of 11x is assumed on 2022E figures. Both of these embed slight discounts to their 2015-2019 averages and equipment rental peer historical averages. Although the discounts are arbitrarily selected this is guided by historical norms vs. peers with the aim of embedding a degree of conservatism to reflect uncertainties in the current market environment. The 2022E P/B of 1.5 is assumed in a similar fashion Note that forecasts are contingent on my underlying assumptions which ultimately assume a recovery in key sectors from 2021. 08 February 2021 48 Equity Research | Aggreko Plc

Output

Valuation estimates by method Est. Price pr. Share (GBp) DCF Valuation 900 P/E Multiple 936 P/B Multiple 972 EV/EBITDA Multiple 964 EV/EBIT Multiple 1,046 Average valuation estimate 964 Share price* 851 Implied target return 13.2%

Source: Analyst estimates. *Price as of 08/02/2021

Upside & Downside Scenarios

Upper Scenario: My upside scenario assumes a better-than expected economic recovery and a synchronised re-opening of borders combined with the resumption of large-scale events. This scenario implies a price of GBp 1,230 per share. Key assumptions are: Pricing: I assume a faster bounceback in pricing growth, relative to the base case, such that average pricing per MW breaches 2019 levels two years earlier in 2022. Utilisation: I assume utilisation rates across all three segments level out at the top- end of management’s target ranges (70%) and do so at a faster rate. Margins: Relationships assumed for the base case remain the same, leading to operating margins in the high-teens and at 20% in the terminal year for the forecast period. CAPEX: I assume no erosion in the PSU fleet as in the base case. CAPEX remains level with base case estimates.

Downside Scenario: My downside scenario assumes a stalled economic recovery, further government lockdowns and implies a price of GBp 600 per share. Key assumptions are: Pricing: I assume no growth in rental pricing from estimated 2020E depressed levels. Utilisation: I assume utilisation rates across all three segments level out in the bottom end of management’s target ranges (60%). Margins: Relationships assumed for the base case remain the same, leading to operating margins in low-teens over the forecast period CAPEX: I assume no growth in the fleet size. Although slightly lower than the base case, CAPEX remains at the top-end of management’s guidance. This is predicated on the idea that CAPEX spending to target growth ambitions is ex-ante.

851, Current Price

1230, 600, Upside Downside Scenario Scenario Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

964, Target Price

52 Wk High/Low

0 200 400 600 800 1000 1200 1400 GBp (pence per share) Source: Analyst estimates. Price as of 08/02/2021

08 February 2021 49 Equity Research | Aggreko Plc

DCF 2019A 2020E 2021E 2022E 2023E 2024E 2025E Base Terminal Revenue 1,613 1,312 1,417 1,603 1,728 1,822 1,905 YoY% Δ -18.7% 8.1% 13.1% 7.8% 5.4% 4.6%

Operating income (EBIT) 130 197 273 308 332 352 EBIT margin 9.9% 13.9% 17.0% 17.8% 18.2% 18.5%

Effective tax rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Tax expense 46 69 96 108 116 123

NOPAT 85 128 177 200 216 229 YoY% Δ 51.0% 38.7% 12.7% 7.8% 6.1%

Add: Depreciation of PPE 286 284 286 287 289 291 Add: Amortisation 43 87 110 126 141 152 Add: Other non-cash adjustments 12 12 12 13 13 13 Minus: Capitalised fulfilment cost (132) (132) (143) (155) (164) (171) Add: decrease/(increase) in working capital 149 (75) (91) (38) (28) (25) Minus: CAPEX (160) (275) (300) (300) (325) (325)

Unlevered free cash flow (FCFF) 282 30 50 134 141 163

> Discount period 1 2 3 4 5 > Discount factor 0.93 0.86 0.80 0.74 0.69 Present value of FCFF 28 43 107 105 113

Est. EV / EBITDA 5.5 4.7 4.4 4.2 4.1 Est. EV/ EBIT 13.4 9.7 8.6 8.0 7.5 Est. EV/ FCFF 88.9 52.5 19.7 18.6 16.1 Est. P/E 19.8 13.6 11.9 10.8 10.1 Est. P/B 1.8 1.6 1.5 1.4 1.3

COST OF CAPITAL TERMINAL VALUE CALCULATION DCF IMPLIED VALUATION ERP* AGK Wgt Risk-free rate 0.5% Perpetuity growth rate 2.5% Cumulative NPV of free cash flow 396 Africa 9.6% 14.0% Beta 1.5 Terminal year cash flow 168 NPV of terminal value 2,241 Australia pacific 4.7% 5.0% Equity risk premium 6.3% Terminal value 3,243 Terminal Portion of EV 85.0% Asia 5.8% 10.0% Cost of equity 10.0% Implied terminal free cash flow multiple 19.4x Enterprise Value 2,637 Latin America 8.7% 11.0% Implied terminal Fwd EBITDA multiple 6.7x North America 4.7% 32.0% Cost of debt 6.5% Discount factor 0.69 Less: Net Debt (336) Europe 5.6% 12.0% Tax rate 35.0% NPV of terminal value 2,241 Middle East 6.3% 11.0% After-tax cost of debt 4.2% Equity Value 2,301 Emerging Markets (residual) 6.6% 5.0% Target Debt % 40.0% Sensitivity Analysis Shares outstanding 255.0 Weighted ERP 6.3% Target Equity % 60.0% Perp. Growth Rate NPV per Share (GBp) 900 Source: NYU Stern, Damodaran - Implied Equity Risk Premiums WACC 7.7% 900 1.5% 2.5% 3.5% 6.7% 940 1170 1550 7.7% 750 900 1120

WACC 8.7% 620 720 870 Source: Analyst estimates.

Relative value multiples (08/02/21)

Revenue 3Yr av. Operating Mkt Cap. (mGBP, last Operating Margin (last EV / Fwd EV / Fwd P/B (last Ticker Currency (mGBP) FY reported) Margin FY reported) ROIC P/E (BEst) EBITDA EBIT reported)

Aggreko AGK LN GBp 2,158 1,613 12.72 14.94 1.97 18.89 5.16 12.55 1.81

Equipment rental peers Ashtead AHT LN GBp 17,510 5,054 26.00 24.21 11.60 22.00 9.35 17.86 5.59 United Rentals URI US USD 14,017 6,651 22.79 21.10 11.69 12.56 6.83 13.32 4.22 Speedyhire SDY LN GBp 348 407 6.01 3.44 (0.05) 12.94 4.65 13.10 1.64 HSS Rentals HSS LN GBp 86 328 (4.22) 5.13 3.48 124.00 3.98 13.75 0.46 VP Group VP/ LN GBp 316 363 10.51 10.25 1.74 12.41 5.80 13.37 1.92 Herc Holdings HRI US USD 1,487 1,567 8.75 11.74 7.03 19.38 5.83 18.01 2.96 Willscot WSC US USD 4,315 834 (0.40) 11.05 3.59 30.71 12.76 23.28 2.82 Textainer Group Holdings TGH US USD 734 555 29.84 31.48 4.29 9.23 8.68 19.14 0.82 H&E Equipment Services HEES US USD 791 1,057 13.40 13.36 4.33 20.06 5.60 16.89 4.14 Atlas Corp ATCO US USD 2,202 887 46.68 60.72 6.56 8.96 7.16 13.70 0.82 Nishio Rent All 9699 JP JPY 511 1,101 9.50 7.52 5.47 8.63 2.51 #N/A N/A 0.73 Emeco EHL AU AUD 377 288 17.94 19.49 13.07 7.90 4.13 8.23 1.33 Northbridge Industrial Services NBI LN GBp 27 34 (4.78) 6.00 (12.16) 21.64 5.54 23.27 0.93 Median 763 860 11.62 12.55 4.31 15.92 5.70 13.75 1.72 Harmonic Mean 13.93 5.43 14.96 1.26 Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

Rental equipment manufacturer peers Cummins CMI US USD 24,756 15,447 11.54 11.45 18.53 14.07 9.22 11.60 4.20 Caterpillar CAT US USD 76,582 32,551 13.82 10.91 8.63 18.32 10.91 13.90 6.84 Wartsila WRT1V FH EUR 4,319 4,095 7.50 5.08 6.66 16.72 9.22 12.41 2.26 General Electric GE US USD 72,940 62,079 (9.31) (6.41) (4.34) 22.62 6.75 11.35 2.81 Median 48,848 23,999 9.52 7.99 7.65 17.52 9.22 12.00 3.51 Harmonic Mean 17.42 8.76 12.24 3.38

Source: Bloomberg (“BEst” estimates). Analyst estimates. As of 08/02/2021

08 February 2021 50 Equity Research | Aggreko Plc

FIGURE 70: FY2019 Operating margins and 2015-2019 average of equipment rental peers Slightly above average operating margins relative to equipment rental peers

35

30

25

20

15 Operating margin (%) 10

5

0 Textainer Ashtead United Emeco Aggreko H&E Herc Willscot VP Group Nishio Rent Speedyhire Northbridge HSS Rentals Group Rentals Equipment Holdings All Industrial Holdings Services Services

FY2019 2015-2019 Average

Source: Bloomberg (‘BEst’ figures). Peers: Ashtead, United Rentals, Speedyhire, HSS Rentals, VP Group, Herc Holdings, Willscot, Textainer Group Holdings, H&E Equipment Services, Nishio Rent All, Emeco, Northbridge Industrial Services, Cummins, Caterpillar, Wartsila, General Electric

FIGURE 71: Forward price to earnings (08/02/2021) FIGURE 72: EV to forward EBITDA (08/02/2021) Fwd PE snapshot EV / Fwd EBITDA snapshot

35 14

30 12

25 10

20 8

Fwd P/E Fwd 15 6 EV / FwdEBITDA 10 4

5 2

0 0

Source: Bloomberg (‘BEst’ figures) & analyst’s Aggreko estimates Source: Bloomberg (‘BEst’ figures) & analyst’s Aggreko estimates Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 51 Equity Research | Aggreko Plc

FIGURE 73: EV / forward EBIT (08/02/2021) FIGURE 74: Price to book (last reported for peers & 21E for Aggreko) EV / Fwd EBIT snapshot Price to book snapshot

25 6

5 20

4 15

3

10 Price to book EV / FwdEBIT 2

5 1

0 0

Source: Bloomberg (‘BEst’ figures) & analyst’s Aggreko estimates Source: Bloomberg (‘BEst’ figures) & analyst’s Aggreko estimates

FIGURE 75: Forward P/Es, harmonic mean of peer group FIGURE 76: EV / Forward EBITDA, harmonic mean of peer group Forward PEs development EV / Fwd EBITDA development

40 16

35 14

30 12

25 10

20 8 Fwd P/E Fwd

15 EV / FwdEBITDA 6

10 4

5 2

0 0

Equipment Rental peers Rental Equipment OEMs Aggreko Equipment Rental peers Rental Equipment OEMs Aggreko

Source: Bloomberg (‘BEst’ figures) & analyst estimates Source: Bloomberg (‘BEst’ figures) & analyst estimates Peers: Ashtead, United Rentals, Speedyhire, HSS Rentals, VP Group, Herc Holdings, Willscot, Peers: Ashtead, United Rentals, Speedyhire, HSS Rentals, VP Group, Herc Holdings, Willscot, Textainer Group Holdings, H&E Equipment Services, Atlas Corp, Nishio Rent All, Emeco, North- Textainer Group Holdings, H&E Equipment Services, Atlas Corp, Nishio Rent All, Emeco, North- bridge Industrial Services, Cummins, Caterpillar, Wartsila, General Electric bridge Industrial Services, Cummins, Caterpillar, Wartsila, General Electric Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 52 Equity Research | Aggreko Plc

FIGURE 77: EV / Forward EBIT, harmonic mean of peer group FIGURE 78: Price to book, harmonic mean of peer group EV / Fwd EBIT development Price to book development

30.0 8

7 25.0

6 20.0 5

15.0 4 EV / FwdEBIT

10.0 Price to Book 3

5.0 2

1 0.0

0

Equipment Rental peers Rental Equipment OEMs Aggreko Equipment Rental peers Rental Equipment OEMs Aggreko

Source: Bloomberg (‘BEst’ figures) & analyst estimates Source: Bloomberg (‘BEst’ figures) & analyst estimates Peers: Ashtead, United Rentals, Speedyhire, HSS Rentals, VP Group, Herc Holdings, Willscot, Peers: Ashtead, United Rentals, Speedyhire, HSS Rentals, VP Group, Herc Holdings, Willscot, Textainer Group Holdings, H&E Equipment Services, Atlas Corp, Nishio Rent All, Emeco, North- Textainer Group Holdings, H&E Equipment Services, Atlas Corp, Nishio Rent All, Emeco, North- bridge Industrial Services, Cummins, Caterpillar, Wartsila, General Electric bridge Industrial Services, Cummins, Caterpillar, Wartsila, General Electric Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 53 Equity Research | Aggreko Plc

Financials

Income Statement (mGBP) 2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E

> Rental Solutions 618 629 720 822 833 652 709 841 935 1,013 1,069 > Power Solutions, Industrial 299 262 340 424 434 330 365 415 453 476 509 > Power Solutions, Utility 584 564 531 342 319 286 299 302 296 290 284 > Pass-through fuel 60 60 139 172 27 43 45 45 44 43 43 Group Revenue 1,561 1,515 1,730 1,760 1,613 1,312 1,417 1,603 1,728 1,822 1,905 Net Revenue 1,501 1,455 1,591 1,588 1,586 1,269 1,372 1,557 1,684 1,778 1,863 YoY% Δ -1.8% -3.1% 9.3% -0.2% -0.1% -20.0% 8.2% 13.5% 8.1% 5.6% 4.7%

Adj. Gross Profit 609 714 841 909 960 1,006 48.0% 52.0% 54.0% 54.0% 54.0% 54.0% (+) Capitalised fulfilment asset — — — 44 66 132 132 143 155 164 171 Gross profit 884 821 920 936 969 741 845 984 1,064 1,124 1,177 Gross Margin (Net Revenue) 58.9% 56.4% 57.8% 58.9% 61.1% 58.4% 61.6% 63.2% 63.2% 63.2% 63.2%

Total distribution costs (433) (430) (493) (476) (482) (381) (412) (467) (505) (534) (559) % of net revenue -28.8% -29.6% -31.0% -30.0% -30.4% -30.0% -30.0% -30.0% -30.0% -30.0% -30.0% Administrative expenses (207) (201) (242) (241) (249) (230) (237) (244) (251) (259) (267) % of net revenue -13.8% -13.8% -15.2% -15.2% -15.7% -18.1% -17.3% -15.7% -14.9% -14.6% -14.3% Impairment loss on trade receivables — — — (7) (7) — — — — — — Other income 5 9 3 7 10 — — — — — — Operating profit 249 199 188 219 241 130 197 273 308 332 352 Operating margin 16.6% 13.7% 11.8% 13.8% 15.2% 10.3% 14.3% 17.5% 18.3% 18.6% 18.9%

ADD: Exceptional Items 26 49 41 — — 181 — — — — — Adj. Operating profit (non-IFRS) 275 248 229 219 241 311 197 273 308 332 352

> Depreciation of PPE (277) (281) (296) (293) (315) (286) (284) (286) (287) (289) (291) > Amortisation of Intangibles (4) (4) (4) (5) (8) — — — — — — EBITDA 530 484 488 517 564 417 481 559 595 621 643 Margin to net revenue 35.3% 33.3% 30.7% 32.6% 35.6% 32.8% 35.0% 35.9% 35.3% 34.9% 34.5% Adj. EBITDA 556 533 529 517 564 598 481 559 595 621 643 Margin to net revenue 37.0% 36.6% 33.2% 32.6% 35.6% 47.1% 35.0% 35.9% 35.3% 34.9% 34.5%

Finance cost on bank loans & overdraft (25) (29) (36) (37) (38) (24) (20) (20) (20) (14) (14) Finance cost on lease liabilities — — — — (5) (5) (5) (5) (5) (5) (5) Finance cost on employee benefit scheme liabilities — — — (4) (3) (3) (3) (3) (3) (3) (3) Total Finance cost (25) (29) (36) (41) (46) (32) (28) (28) (28) (22) (22) Finance income 2 2 2 4 4 — — — — — — Net Finance Income/(Cost) (23) (27) (34) (37) (42) (32) (28) (28) (28) (22) (22)

Profit before tax 226 172 154 182 199 98 169 245 279 309 330 Tax (64) (47) (48) (57) (70) (34) (59) (86) (98) (108) (115) Profit after tax 162 125 106 125 129 64 110 159 182 201 214

Weighted average no. of ordinary shares (m) 256.0 255.0 255.0 254.8 254.6 254.6 254.6 254.6 254.6 254.6 254.6 Adjustment for share options (m) — — — 0.2 0.4 0.4 0.4 0.4 0.4 0.4 0.4 EPS (GBp) 63 49 42 49 51 25 43 62 71 79 84 Diluted EPS (GBp) 63 49 42 49 51 25 43 62 71 79 84

Dividends paid (69) (69) (69) (69) (69) (10) (21) (36) (50) (62) (73) Dividend per share (GBp, Diluted) 27 27 27 27 27 4 8 14 19 24 29

Source: Analyst estimates. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 54 Equity Research | Aggreko Plc

Financials

Cash Flow Statement (mGBP) 2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E

Net Income 64 110 159 182 201 214 Non-Cash adjustments Add: Depreciation & Amortisation 286 284 286 287 289 291 Add: Amortisation of fulfilment asset 43 87 110 126 141 152 Add: Share based payments 12 12 12 13 13 13 Less: Capitalised Fulfilment Cost (132) (132) (143) (155) (164) (171) Less: Gain/loss from sales in PPE — — — — — — Change in NWC & Tax assets/liabilities Decrease/(increase) in operating assets & tax assets 197 (56) (86) (63) (47) (42) Increase/(decrease) in operating liabilities & tax liabilities (48) (18) (5) 25 19 17 Cash flow from operations - Analyst estimates 346 298 347 330 510 421 286 332 415 452 474

Fleet CAPEX (150) (250) (275) (275) (300) (300) Non-Fleet CAPEX (10) (25) (25) (25) (25) (25) Acquisitions — — — — — — Proceeds from sale of PPE — — — — — — Cash flow from investing - Analyst estimates (255) (267) (336) (244) (217) (160) (275) (300) (300) (325) (325)

Share issuance/(reductions) — — — — — — Debt drawdown/(repayment) (83) (83) — — (121) — Payment of lease liabilities — — — — — — Dividends paid (10) (21) (36) (50) (62) (73) Increase/(decrease) in Pension Obligations 4 — — — — — Other (7) — — — — — Cash flow from financing - Analyst estimates (77) (39) 25 (68) (329) (96) (104) (36) (50) (183) (73)

Free Cash Flow - Analyst estimates 86 293 261 11 32 115 127 149

Cash at beginning of year 37 48 44 71 85 87 253 160 156 222 166 Net change in cash 14 (8) 36 18 (36) 166 (92) (4) 66 (56) 76 Add: Net change in FX & Overdraft adjustment (3) 4 (9) (4) 38 — — — — — — Cash at end of year 48 44 71 85 87 253 160 156 222 166 241

Source: Analyst estimates. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 55 Equity Research | Aggreko Plc

Financials

Balance Sheet (mGBP) 2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E

Current Assets Inventories 189 247 232 229 216 172 188 203 218 229 239 Trade & other receivables 476 656 770 781 659 503 544 615 663 699 731 Fulfilment assets — — — 15 32 70 88 101 113 122 129 Cash & cash equivalents 48 44 71 85 87 253 160 156 222 166 241 Derivative financial instruments 1 1 — 1 1 — — — — — — Current tax assets 33 20 23 23 21 25 25 25 25 25 25 747 968 1,096 1,134 1,016 1,023 1,004 1,100 1,241 1,241 1,366

Non-Current Assets Goodwill 118 159 184 184 177 177 177 177 177 177 177 Other intangible assets 16 24 31 42 41 41 41 41 41 41 41 Investment — — — 9 9 9 9 9 9 9 9 Property, plant & equipment 1,139 1,309 1,214 1,169 1,166 1,040 1,031 1,045 1,058 1,094 1,128 Deferred tax asset 30 51 42 36 44 44 44 44 44 44 44 Fulfilment assets — — — 29 54 105 132 152 169 183 194 Retirement benefit surplus — — — 1 4 — — — — — — Derivative financial instruments — — — — — — — — — — — 1,303 1,543 1,471 1,470 1,495 1,416 1,433 1,468 1,498 1,547 1,593

Total Assets 2,050 2,511 2,567 2,604 2,511 2,438 2,438 2,568 2,738 2,788 2,959

Current Liabilities Borrowings (31) (60) (139) (144) (59) (59) (49) (49) (49) (34) (43) Lease Liability — — — — (33) (33) (33) (33) (33) (33) (33) Derivative financial instruments (1) (2) (1) (1) (1) (1) (1) (1) (1) (1) (1) Trade & other payables (259) (299) (408) (371) (388) (336) (313) (305) (327) (344) (359) Current tax liabilities (64) (58) (61) (47) (42) (42) (42) (42) (42) (42) (42) Demobilisation provision — — — (6) (5) (7) (9) (10) (11) (12) (13) Provisions (8) (1) (8) (2) — — — — — — — (363) (420) (617) (571) (528) (478) (447) (440) (464) (467) (491)

Non-Current Liabilities Borrowings (506) (633) (584) (627) (511) (429) (356) (356) (356) (250) (241) Lease liability (6) (5) (2) — (68) (68) (68) (68) (68) (68) (68) Deferred tax liabilities (58) (55) (22) (34) (36) (36) (36) (36) (36) (36) (36) Demobilisation provision — — — (5) (9) (10) (13) (15) (17) (18) (19) Retirement benefit obligation (2) (30) (25) — — — — — — — — Provisions — — — — — — — — — — — (572) (723) (633) (666) (624) (543) (473) (475) (477) (372) (364)

Total Liabilities (935) (1,143) (1,250) (1,237) (1,152) (1,021) (920) (915) (941) (839) (855) Net Assets 1,115 1,368 1,317 1,367 1,359 1,417 1,517 1,653 1,798 1,949 2,103

Shareholders' Equity Share capital 42 42 42 42 42 42 42 42 42 42 42 Share premium 20 20 20 20 20 20 20 20 20 20 20 Treasury shares (9) (14) (7) (17) (13) (7) (7) (7) (7) (7) (7) Capital redemption reserve 13 13 13 13 13 13 13 13 13 13 13 Hedging reserve (net of DTA) (4) (3) (1) 1 2 (2) (2) (2) (2) (2) (2) Foreign exchange reserve (149) 71 (27) (51) (126) (135) (135) (135) (135) (135) (135) Retained earnings 1,202 1,239 1,277 1,359 1,421 1,486 1,586 1,722 1,867 2,018 2,172 Total Shareholders' Equity 1,115 1,368 1,317 1,367 1,359 1,417 1,517 1,653 1,798 1,949 2,103

Source: Analyst estimates. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 56 Equity Research | Aggreko Plc

Financials

Ratio Analysis 2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E

Inventories 189 247 232 229 216 172 188 203 218 229 239 Debtors 476 656 770 781 659 503 544 615 663 699 731 Creditors (259) (299) (408) (371) (388) (336) (313) (305) (327) (344) (359) Net Working Capital - Analyst Estimate 406 604 594 639 487 339 418 513 554 584 611 YoY% Δ 21.6% 48.8% -1.7% 7.6% -23.8% -30.4% 23.4% 22.7% 7.9% 5.5% 4.6% % of Net Revenue 26.0% 39.9% 34.3% 36.3% 30.2% 25.8% 29.5% 32.0% 32.0% 32.1% 32.1%

Liquidity Ratios Current ratio 2.06 2.30 1.78 1.99 1.92 2.14 2.25 2.50 2.68 2.66 2.78 Quick ratio 1.44 1.67 1.36 1.52 1.41 1.58 1.57 1.75 1.91 1.85 1.98 Cash ratio 0.13 0.10 0.12 0.15 0.16 0.53 0.36 0.36 0.48 0.35 0.49 Defensive interval ratio (incl. dep) 299 405 418 441 372 452 396 396 427 398 430

Efficiency Ratios Receivables turnover ratio 3.28 2.31 2.25 2.25 2.45 2.61 2.61 2.61 2.61 2.61 2.61 Days sales outstanding (DSO) 111 158 162 162 149 140 140 140 140 140 140 Inventory turnover ratio 3.58 2.81 3.49 3.60 2.98 3.32 3.04 3.04 3.04 3.04 3.04 Days inventory on hand (DOH) 102 130 105 101 122 110 120 120 120 120 120 Payables turnover ratio 2.61 2.32 1.99 2.22 1.66 1.70 1.83 2.03 2.03 2.03 2.03 Days of payables (DOP) 140 157 184 164 220 215 200 180 180 180 180 Cash Conversion Cycle (DSO+DOH-DOP) 74 131 83 99 52 35 60 80 80 80 80

Leverage Ratios Debt to assets 0.46 0.46 0.49 0.48 0.46 0.42 0.38 0.36 0.34 0.30 0.29 Debt to equity 0.84 0.84 0.95 0.90 0.85 0.72 0.61 0.55 0.52 0.43 0.41 Interest Coverage (EBITDA) 21 17 14 14 13 14 19 22 24 32 33 Net Debt - (Net Cash) 495 654 654 686 584 336 346 350 284 219 144 Net Debt / EBITDA (IFRS16) 0.93 1.35 1.34 1.33 1.04 0.81 0.72 0.63 0.48 0.35 0.22

Profitability Ratios Gross Profit Margin 58.9% 56.4% 57.8% 58.9% 61.1% 58.4% 61.6% 63.2% 63.2% 63.2% 63.2% Operating Margin 16.6% 13.7% 11.8% 13.8% 15.2% 10.3% 14.3% 17.5% 18.3% 18.6% 18.9% EBITDA Margin 35.3% 33.3% 30.7% 32.6% 35.6% 32.8% 35.0% 35.9% 35.3% 34.9% 34.5% Net Income Margin 10.4% 8.3% 6.1% 7.1% 8.0% 4.9% 7.7% 9.9% 10.5% 11.0% 11.2% Return on equity (ROE) 14.5% 9.1% 8.0% 9.1% 9.5% 4.5% 7.2% 9.6% 10.1% 10.3% 10.2% Return on assets (ROA) 7.9% 5.0% 4.1% 4.8% 5.1% 2.6% 4.5% 6.2% 6.6% 7.2% 7.2%

Return on capital employed (ROCE) > Goodwill, intangibles & investments 134 183 215 235 227 227 227 227 227 227 227 > PPE 1,139 1,309 1,214 1,169 1,166 1,040 1,031 1,045 1,058 1,094 1,128 > Working Capital 406 604 594 639 487 339 418 513 554 584 611 > Fulfilment asset & demobilisation provision — — — 33 72 157 197 228 253 274 291 > Cash 48 44 71 85 87 253 160 156 222 166 241 > Less: Overdraft (16) (19) (12) (9) (51) (14) (14) (14) (14) (14) (14) Estimated net operating assets 1,711 2,121 2,082 2,152 1,988 2,002 2,019 2,155 2,300 2,330 2,484 ROCE - analyst estimate 14.7% 10.4% 8.9% 10.3% 11.6% 6.5% 9.8% 13.1% 13.8% 14.3% 14.6%

Source: Analyst estimates. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

08 February 2021 57 Equity Research | Aggreko Plc

Important Information

Analyst(s) Certification(s): I (we), Victor Pancic, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will directly or indirectly be related to the specific recommendations or views expressed in this research report.

Price Target The price target represents the analysts expectation of where the stock will trade in the next 12 months. Upside/downside scenarios, where provided, represent the potential upside and downside to the analyst’s price target over the next 12 months.

Analysts’ stock rating are defined as follows: Buy: The stock’s total return is expected to be greater than 20% over the next 12 months. Hold : The stock’s total return is expected to be within a +/- 20% range from its current price over the next 12 months. Sell : The stock’s total return is expected to be below -20% over the next 12 months.

Disclaimer This document is provided to you for your information and discussion only. It is not a solicitation or an offer to buy or sell any security or other financial instrument. Any information including facts, opinions or quotations, may be condensed or summarised and is expressed as of the date of writing. The information may change without notice and the author is under no obligation to ensure that such updates are brought to your attention. This document has been prepared from sources the analyst believes to be reliable but we do not guarantee its accuracy or completeness and do not accept liability for any loss arising from its use. The analyst reserves the right to remedy any errors that may be present in this document. All opinions and estimates are given as of the date hereof and are subject to change. The analyst is not obliged to inform the recipients of this communication of any change to such opinions or estimates. Any past or simulated past performance including back-testing, modelling or scenario analysis contained herein is no indication as to future performance. No representation is made as to the accuracy of the assumptions made within, or completeness of, any modelling, scenario analysis or back-testing. Neither the analyst nor any of his/her affiliates accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation. THIS DOCUMENT IS FOR INFORMATION PURPOSES ONLY AND SHOULD NOT BE RELIED UPON. Copyright 2021, All rights reserved. This report or any portion hereof may not be reprinted, sold or re-distributed without the written consent of the author. Completed 08/02/2021 - THIS DOCUMENT IS SOLELY FOR INFORMATIONAL PURPOSES

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