AMEC the consulatancy, engineering and project mangement services company which I got into and wrote up earlier in the year has today announced its interim results. It is another of those that did OK initially but has since drifted back with the market which might offering up another buying opportunity in the weeks ahead. I had originally suggested trying to pick it up under 1050 pence so with the shares closing yesterday at about 1089 pence lets look at the results to see if the buy case still holds good.
First half revenues and EBITA profits on an underlying basis were up by 4% and 5% respectively and they suggest that margins were stable. They did go onto say though, given the mix of business they do expect margins to be down slightly for the year as a whole. In addition, like many UK companies they were hit by the strength of Sterling such that on a reported basis revenues of £1858 million and EBITA of £152 million were down 7% and 4% respectively. The eps figure came in at 19.8 pence which meant that both this and the revenue and EBITA figures were slightly below the concensus figures published on the website. They also say that actual exchange rates year to date, and forecast average North American exchange rates for the remainder of 2014, continue to be less favourable than 2013. This currently translates into a year on year impact on revenues of circa £250 million, and for EBITA of circa £25 million for the full year. Tbhey also say that as in 2013, profits and cash flow generation will be second-half weighted.
On a more positive note they stated that the order book was up by 16% to £4.2 billion (on an underlying basis) which is about equaly to this years expected turnover. While the interim dividend was rasied by 10% to 14.8 pence which is slightly faster than the 8% or so growth that is suggested by full year divdend forcasts of 45.4 pence.
The other significant factor with this one is the acquisition of Foster Wheeler which continues to make good progress, with integration planning apparently well underway and completion now expected early in the fourth quarter, and be double-digit earnings enhancing in the first 12 months after completion. The combination of Foster Wheeler and AMEC is expected to create sustainable value for shareholders for the long term, with ROIC expected to exceed the cost of capital in the second twelve months' period after completion. At 30 June 2014 AMEC had net cash of £28 million and post the acquisition of Foster Wheeler AMEC they say they will retain a strong balance sheet. This is mostly becasue they are issuing shares as part of the consideration for the acquisition such that the new shares issued will represent 23% of the emlarged share capital.
Summary & Conclusion
So a mixed set of numbers from AMEC which slightly missed the concensus and they are talking about second half weighting to profits and cash flow which can be a concern. However the shares look reasonable value on a P/E of aropund 12.5% and dividend yield in excess of 4% based on this years forecasts. Having said that I'm not sure there is enough in these numbers to get the market excited and indeed some may even be underwhelmed by the results. Thus i wouldn't suggest rushing out and buying it, although I'm happy to hold for the longer term potential. But I would suggest you put it on your watch list to see if you can pick it up closer to 950 to 1000 pence as this has been the bottom end of their trading range and might therefore provide some support for the share price on a technical basis. While a rating of more like 11x & 4.5%+ at those kind of levels would I suggest also be a very attractive entry point. While today's numbers may not justify the shares falling that far, I suspect we could see a flow back of shares form the US in Q4 when the Foster Wheeler acquisition completes and this could throw up the further buying opportunity I am looking for.