The Investment Column: Hope of nuclear power contracts makes Amec worth holding on to

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The Independent Online

While the public debate on the future of nuclear power in the UK continues, companies such as Amec are waiting on the sidelines ready to pick up billion-pound contracts to restore Britain's nuclear generators if they get the green light from the Government.

While the public debate on the future of nuclear power in the UK continues, companies such as Amec are waiting on the sidelines ready to pick up billion-pound contracts to restore Britain's nuclear generators if they get the green light from the Government.

The company, an engineering, construction and project management business, is already hoping to win lucrative contracts to clear up existing nuclear waste. These could be worth as much as £20bn and will go out to tender next year.

But aside from the nuclear issue in the UK, a trading statement from Amec at its annual meeting yesterday revealed the company is on track for a good year.

Amec has moved from straightforward construction projects to large and complex developments, which can involve project management, design, construction, engineering and maintenance. Its three divisions are engineering and technical services (E&TS), the oil and gas sector, and project solutions, which includes public sector developments. These are all high-margin activities, bringing in a number of income streams.

Since the year-end Amec said it had won three major projects in the oil and gas sector, worth more than £100m. Its environmental business, part of E&TS, which carries out impact assessments before major building work, has done well in the US from contracts from the military, which has been building air force and army bases.

Amec is also a major player, through its project solutions division, in the Government's private finance initiative (PFI), where private companies bid to build and run public sector developments such as schools and hospitals. Government spending on PFI projects shows no sign of slowing, and these contracts bring in long-term revenues. Amec also invests in the projects and gets a return on its equity stake. These projects are also available internationally, and Amec is close to winning a £700m project for a bridge in Korea.

In January it raised £90m through a share placing, which will help fund PFI investments. These funds will also ease some of the debt concerns that dog the company. Debt is down to about £350m but still high. It is also at risk from a downturn in industrial spending in the US.

At 332p, the shares trade at about 12 times earnings. Worth holding for news of future contract wins.

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