Amey explores the side roads

Amey, now Britain's fourth-biggest road builder, has seen its shares sink from last June's 161p flotation price to an unchanged 148p yesterday.

Given the increasingly bearishnoises emanating from the Government concerning cuts to its massive £23bn highways programme, it has been lucky to get away so lightly. But Amey is confident it can weather the downturn.

To offset the decline in new-build, the group, a 1989 spin-off from the aggregates group ARC, raised reconstruction and maintenance work from 30 to 50 per cent of roads turnover last year. It is also expanding aggressively into management and operation of facilities once they are built, tendering for two of the first batch of "design, build, finance and operate" contracts - on the A1 and the A69 - being let by the Government.

Together, maintenance and management represent over 50 per cent of turnover, which rose from £214m to £220m last year. The chairman, Neil Ashley, says this should provide a hedge against any further cuts in capital expenditure.

Thus far, Amey's judgement has paid off. It stayed in the black through the recession and its first annual results as a listed company, released yesterday, reveal underlying profits up from £4.7m to £5.12m in the 12 months to December, excluding 1993 losses of £2.55m on discontinued businesses.

Shareholders are to receive a final dividend of 3p, making 4.5p in total.

The core of the business remains contracting, which raised profits from £4.37m to £4.45m, despite a loss of more than £250,000 on the building side. The group has a large part of its turnover tied up for the current year, with nearly £200m of orders in hand for 1995 alone. It also had net cash of £13.2m at the year-end and is looking for bolt-on acquisitions, particularly on the building side. Profits of something north of £6m for the current year would put the shares on a prospective multiple of less than 11.

Amey appears well managed, but looks too small to compete effectively in the DBFO market, while its confidence that road maintenance spending will be maintained may prove to be naive. The shares look high enough on fundamentals, although the management's 56 per cent stake would ease the path