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AMEC - Interim Management Statement

23/4/2014

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This UK listed Support Service business is a provider of consultancy, engineering and project management services to its customers in the world’s oil and gas, minerals and metals, clean energy, environment and infrastructure markets. if you would like a key facts pdf then click on the logo to the left. They today announced a very brief Interim Management Statement in which they flagged good order intake and forward visibility with a record order book of £4.2 billion at 31st March 2014. This compares with their annual turnover of around £4 billion. AMEC Chief Executive Samir Brikho said:

"AMEC has continued to trade in line with expectations for 2014 and our record order book gives us confidence in our continued growth. The acquisition of Foster Wheeler remains on track, with integration planning well under way and completion expected in the third quarter. We believe the combination of AMEC and Foster Wheeler is a compelling one, for our shareholders, our customers and our employees."

There was an interview with the CEO Sam Brikho in the Telegraph recently which gave a good overview of AMEC and background on him, the company strategy and the recent Foster Wheeler deal in the US. On this in the full statement they said: "The acquisition is expected to be double-digit earnings enhancing in the first 12 months after completion. Further, 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 month period after completion." However, they did flag that business mix this year would mean lower margins and that dollar weakness would hit revenues by £250 million and EBITA £25 million. This compares with the £3974 million and £343 million respectively that they reported for these measures in 2013.

I bought this one recently to recycle the proceeds from the disposal of a successful investment which had got onto an expensive rating. This one was in the middle of its sideways trading range that it has been stuck in for the last three years and is reasonable value (PE of 13 and yield of 3.8% for 2014) and quality (ROE and ROCE around 17%). It had a small net debt position of £27 million at 31st March 2014 versus cash on the balance sheet of £25 million a year ago, but this may well change once the Foster Wheeler acquisition completes - so worth watching. This is another one of those stocks that has suffered a little by missing some longer term earnings targets that they set themselves. However, if they continue to deliver the steady growth that they have in the past and which is forecast for the next few years, then I think this one could enjoy a re-rating. It is also cum the 28.5 pence final dividend which goes xd on 28th May 2014 for yield of around 2.4% on the final alone and offers a yield of 3.8% on this years forecast dividend of 45.4 pence.

Obviously the large US acquisition and integration is a risk, but as the CEO points out in his interview (see link above) it is something they have done many times before. It is also taking on a related company and adding midstream and downstream activities to the markets they serve and broadening their geographic footprint. Since the deal does not complete until later this summer I suspect there could still be some share price volatility from flow back of shares from US shareholders. If this is the case and if we should see some more market weakness, then there may be further opportunities to pick this one up towards 1000 pence and the bottom of its longer term trading range. 

I'm not counting on that as I'm taking a longer term view on this one, which is why I opened my position, but if it does get down there again and nothing untoward has happened I will be looking to top up rather than panic out just because of a price movement. Certainly worth setting a share price alert for a price of less than say 1050 pence if the investment case appeals to you. It is also interesting to note it is currently a top decile stock on Stockopedia stock ranks and appears on seven of their guru screens . If you are not familiar with their service and want more information and a free two week trial then click on the highlighted link above.


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