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AMEC plc (AMEC) Ordinary 50p Shares

Sell: 1,005.00pBuy: 1,006.00p021.00p (2.04%)
FTSE 2500.31%
Market closedPrices as at close on 24 October 2014Prices delayed by at least 15 minutes | Switch to live prices |
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HL comment (3 October 2014)

Third quarter trading update: In a brief announcement, AMEC, which operates in some 40 countries globally, highlighted trading which had remained in line with its expectations. The share price rose by over 2% in opening UK stockmarket trading.

The group continued to see less greenfield activity in some of its key upstream oil and gas markets, which is partially offsetting strong growth from its Clean Energy and Middle Eastern Oil & Gas business. Management forecasts modest underlying revenue growth in 2014 for its existing operations, led by ongoing strength in the Clean Energy market and Middle Eastern Oil and Gas. The mix of business is expected to result in a slight reduction in group profit margins compared to last year. As in 2013, profits and cash flow generation will be second-half weighted.

Furthermore, and as previously outlined, North American exchange rates for the remainder of 2014 continue to be less favourable than 2013. As such, management expects this to translate into a year on year impact on revenues of circa £250 million, and for trading profit of circa £25 million for the full year. In all, and with the acquisition of Foster Wheeler expected to be double-digit earnings enhancing in the first 12 months after completion, consensus analyst opinion currently points towards a buy.

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Negative Points:
  • Currency movements continue to pose potential headwinds. A year on year impact on revenues of circa £250 million, and for trading profit of circa £25 million for the full year is currently forecast by management. 
  • Less greenfield activity in some of its key upstream oil and gas markets continues to drag on the company's performance.
  • Engineering firms rely heavily on their implementation track record to win new business. Association with an industrial accident or faulty implementation could impair AMEC's ability to compete for new business. 
  • AMEC operates in areas which can be politically sensitive such as nuclear, oil sands, and unconventional oil and gas. While AMEC's broad client base provides diversification, a sharp shift in policy may impact on future profits. 
  • The group is exposed to project risk in the form of poor cost projections or project delays that could impact earnings. 

Positive Points:
  • Trading has remained in line with management's expectations.
  • AMEC previously announced the acquisition of US-listed, Switzerland-based Foster Wheeler AG in a cash and shares acquisition valued at around £2 billion. The acquisition is expected to close 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 by management to create sustainable value for shareholders for the long term. 
  • The group's order book at 30 June 2014 came in at £4.2 billion up from £3.9 billion in 2013. 
  • Acquisitions remain a key component of the company's growth strategy. To build on its US nuclear position, the group acquired Automated Engineering Services Corp (AES) for $29 million on 4 November 2013. 
  • Currency movements can work in the company's favour. 
  • Diversification in both business type customers and geographies is currently enjoyed. 
  • A progressive dividend policy is being pursued. The half year dividend was increased by 10% to 14.8 pence per share.

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