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AMEC plc (AMEC) Ordinary 50p Shares

Sell: 1,074.00pBuy: 1,075.00p06.00p (0.56%)
FTSE 2500.49%
Market closedPrices as at close on 18 September 2014Prices delayed by at least 15 minutes | Switch to live prices |
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HL comment (7 August 2014)

Half year results: AMEC, which operates in some 40 countries globally, battled against currency headwinds during the period. The share price was down marginally (-0.2%) in early afternoon UK stockmarket trading. Reported group revenue declined by 7% during the period, impacted by a £160 million adverse currency translation arising from the strength of Sterling. In addition, the Chief Executive noted that "As expected, we are seeing less greenfield activity in some of our key upstream oil and gas markets, which is partially offsetting the strong growth from Clean Energy and Middle Eastern Oil & Gas." The board also went on to note that "The acquisition of Foster Wheeler continues to make good progress, with integration planning well underway and completion now expected early in the fourth quarter. We believe the combination of AMEC and Foster Wheeler is a compelling one, for our shareholders, our customers and our employees."

Accompanying outlook comments highlighted that "We now expect to see modest underlying revenue growth in 2014 for our existing operations, led by ongoing strength in the Clean Energy market and Middle Eastern Oil and Gas. As discussed previously, the mix of business will result in a slight reduction in group margins compared to last year. As in 2013, profits and cash flow generation will be second-half weighted." 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 strong buy.

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Financial Highlights:
  • Reported group revenue declined by 7% to £1.86 billion.
  • Adjusted pre-tax profit declined by 3% to £150 million.
  • Reported pre-tax profit fell by 29% to £83 million.
  • Half year dividend increased by 10% to 14.8 pence per share.

Negative Points:
  • Currency movements continue to pose potential headwinds. A £160 million adverse currency translation arising from the strength of Sterling impacted on revenues.
  • Less greenfield activity in some of its key upstream oil and gas markets dragged 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:
  • 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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