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AMEC plc (AMEC) Ordinary 50p Shares

Sell: 1,189.00pBuy: 1,190.00p012.00p (1.00%)
FTSE 2500.29%
Market closedPrices as at close on 23 July 2014Prices delayed by at least 15 minutes |  Switch to live prices |
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HL comment (23 April 2014)

First quarter trading update: The news from the consultancy, engineering and project management services company broadly reassured investors. Management outlook comments noted "AMEC has continued to trade in line with expectations for 2014 and our record order book gives us confidence in our continued growth." The share price rose marginally in mid-morning stockmarket trading.

The company went on to announce that "the acquisition of Foster Wheeler AG remains on track for completion in the third quarter. The acquisition is expected to be double-digit earnings enhancing in the first 12 months after completion." As for accompanying outlook comments, management noted that "AMEC expects to see good underlying revenue growth in 2014 for its existing operations, with ongoing strength in the oil and gas and clean energy markets. However, the mix of business may result in a slight reduction in group margins." For now, consensus analyst opinion points towards a buy.

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Negative Points:
  • Currency movements continue to pose potential headwinds. 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.
  • 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:

  • The trading outlook is unchanged from that provided at the 2013 full-year results in February 2014. 
  • The group's order book at 31 March 2014 came in at £4.2 billion (December 2013: £4.1 billion; March 2013: £3.7 billion).
  • 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 be double-digit earnings enhancing in the first 12 months after completion. The acquisition remains on track for completion in Q3 2014.
  • 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.
  • The company completed a £400 million share buyback programme in February 2013.

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