AEA shares slide on shock warning

AEA TECHNOLOGY, the privatised engineering services group, yesterday lost its status as a darling of the market when it issued a shock profits warning, sending its shares into a 41 per cent nosedive.

The shares plummeted from 617.5p to 369.5p as the group warned of flat profits in the year to March, against expected growth of 8 or 9 per cent.

Last summer AEA was seen as "the next Rentokil", having delivered profit growth of 15 to 19 per cent for five years as it thrived as a hi-tech engineering and environmental consultancy.

The shares benefited from high-profile contracts, including a pounds 50m deal to supply lithium batteries for the Army's battlefield communications system, and one to clean up the Dounreay nuclear reprocessing plant.

Analysts said the warning "crucified sentiment". Profits were expected to exceed pounds 50m; now the consensus is pounds 29m.

The group said it had been hit in two key areas. Engineering suffered the effects of the low oil price as oil companies put off key projects, and AEA admitted it had been too bullish on demand for environmental services. Peter Watson, chief executive, said: "We expected companies to begin spending more on this, but that just hasn't yet been translated into reality."

Mr Watson said the warning was modest given the stock market's reaction. "We have had a continuous record of growth and success for the last five years. Clearly in the last year we have had one or two markets which are softer."

Charles Pick, an analyst with WestLB Panmure, said the shares, now at a 30 per cent discount to the market, looked seriously undervalued.