A dull stock for a dull day?

It is a dull day here in the UK today, both weather wise - not at all like summer and news flow wise. Fittingly perhaps, we have had a trading update from what is looking like a dull stock - AMEC Foster Wheeler (AMFW) which I have written on in the past. I did rather cool to it towards the end of last year as the rapid decline in the oil price seemed likely to hit their business as their customers delayed or cancelled projects on the back of this.

Indeed in today's update they are flagging that they expect their revenues and margins to be lower on the back of contract delays and pricing pressure. Against this they say that some currency pressures could ease and that they still expect £40m of cost savings from the Foster Wheeler deal last year with these rising to £85m by 2017, although at a cost of £50m this year.

They also say that they expect this years profits to be weighted towards the second half. This is something that I don't generally like to see as it means that the first half figures will likely be dull and the market may react badly when they actually see them. It also leaves them as a hostage to fortune if things don't pick up as they are hope and expect. Then they leave themselves unavoidably open to having to further downgrade forecasts or issue a profits warning which is never usually that well received.

Summary & Conclusion
As I say a dull looking update for a dull day which may lead to some more down grades to earnings on this one which has been the trend in the year to date. There is also the risk of more downgrades / a profits warning in the second half so overall not an encouraging picture which is why I cooled to this one and exited my position last year.

It does look reasonable value though on conventional metrics with a PE for this year (on current forecasts) of 11.4x and an attractive yield of 4.7%. However, I note that the coverage of the dividend is lowish and it is not expected to grow much this year if at all. The balance sheet also has some debt post the deal, which makes enterprise based valuations look less attractive with the earnings yield for example coming in at less than 5%. Thus I cannot suggest it is a buy given the outlook and the Compound Income Score of 41, but I guess if you hold it you could hang on and be patient as it is possible that patience might bring some rewards if the managements expectations can be met in the second half despite the outlook - but as ever you should do your own research, pay your money and take your choice. Cheers roll on summer, although at least the bad weather today might mean England can scrape a draw in the Cricket today so as they say every cloud has a silver lining - howzat over and out.

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