Bottom Line: Delayed recovery forces Amec overseas

Bouncing back from an pounds 88.2m loss to a pounds 21m profit looked impressive on the surface, but a 5p fall in Amec's share price to 135p underlined the City's disappointment.

Stripping out last year's pounds 13m Australian fiasco, profits fell sharply in both building and mechanical engineering. Only reduced losses in housing and property pushed group operating profits marginally higher.

Margins in the core UK contracting operation remained under pressure and the US loss provided an unpleasant shock.

The collapse in profits from building and civil engineering gave substance to the company's candid assessment that there is simply no money to be made from fixed-bid contracting.

According to Sir Alan Cockshaw, chairman, 1994 is likely to remain very tight with any recovery delayed until at least the following year. In mechanical and electrical engineering margins slipped from 2.4 per cent to 1.7 per cent.

There is no doubting the wisdom of moving overseas to chase better-margin work as long as overcapacity continues to dog the home market. Contracts in China and Indonesia are encouraging.

But recent problems in the US and Australia confirm that the real challenge in working abroad is not finding the orders but having the management skills to make them profitable at a distance.

The brightest light in yesterday's figures was, as with Amec's peers, provided by the housebuilding operation, although increased profits were not enough to make up fully for losses from the property arm.

The real problem, however, is that, unlike Tarmac and Wimpey, Amec does not have a big enough presence to benefit from the recent upturn in the housing market.

An expected rise in pre-tax profits to pounds 30m this year will all stem from loss elimination. If achieved, and the size of the projects Amec gets involved with makes forecasting more than usually hazardous, earnings per share will rise from 3.6p to 5.2p, implying a prospective p/e of 26.

With the shares yielding less than 3 per cent that is too demanding and the recent fall from 160p is unlikely to be reversed.