Amec looks like a buy for the patient

Jurys Doyle; Northgate  
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The Independent Online

Waiting for a re-rating of Amec's share price has been a bit like waiting for Godot. There has been plenty of expectation, and analysts believe the company has moved decisively away from its low-margin past as a construction firm and increasingly deserves a higher support services rating, but at the end of the day there has been none. Maybe it'll be lucky this year.

A trading update yesterday confirmed it is doing all the right things. Its push into the oil and gas industry, in particular, where it offers design, maintenance and safety services, has provided some high-margin business and plenty of organic growth. The energy market accounts for 25 per cent of Amec's sales and it is expected to remain buoyant as the industry's major players struggle to boost capacity.

The division Amec calls "Investments", which consists mainly of its public-private partnerships, has been strengthened in recent months. Its deal to operate and redevelop British Waterways' canal-side land and property portfolio looks particularly attractive in the long-run. It also picked out transport infrastructure projects as a future source of lucrative new business – unsurprisingly, now the Government has been forced to focus on the issue.

Although the trading statement did not look so far out, analysts also have hopes for an uptick in business for the private sector in the Far East and the US later this year. Profits, around £114m in 2001 according to the consensus of forecasts, look set to increase to £130m this year. That puts the stock, up 6p to 427p, on a forward price-earnings multiple of 14, which looks good value for its global mix of businesses and improving margins.

An economic upturn could help prompt that elusive re-rating. There is always the possibility the stock will be shunted from the construction sector, where it looks expensive, into the support services sector, where stocks trade on much higher multiples of earnings. Another possible trigger could be comment later in the year on its purchase of the remaining 54 per cent of Spie, its French networks business. This is due next January and puts 5p on earnings per share at a stroke.

After a year going nowhere, the stock could reward investors' patience. Buy.

Jurys Doyle

As any touring celeb knows, Jurys Doyle Hotels are the business in Ireland. The five star Westbury and Berkley Court offer some of Dublin's plummest rooms and the hotel group is equally strong in mid-priced accommodation through its three star Jurys Inn brand. One in five hotels in the Irish capital belongs to Jurys and one in ten across the Irish Republic.

Interim results yesterday were encouraging, despite the period's inclusion of three of the worst negatives to hit the hotel industry in a decade: the foot-and-mouth crisis, the US downturn and 11 September.

The group managed to limit its earnings decline to 10 per cent, beating analysts' more bearish expectations. Its three hotels in Washington – acquired when Jurys bought the Doyle Hotels in 1999 – did suffer but are not significant in the context of the group's 32 properties.

The 12 per cent fall in pre-tax profits for the six months to 31 October to €28.8m (£17.8m) reflects the breadth of the portfolio and strength of management. In Jurys Inn, the group has a brand that has stolen a march on its UK competitors. The no-frills concept, modelled on Marriott's Courtyard brand, keeps rates reasonable for high quality rooms in downtown locations by not offering room service. This makes return on capital invested in the mid teens, compared with the industry average of around 8 per cent. Jurys plans to step up the brand's roll-out, possibly through creating a joint venture with a big bank.

After flat earnings this year, growth is set to climb to 20 per cent over the next couple. Jurys looks a natural takeover target and the shares, up 3.5p to 565p, should have further to go.

Northgate

Nice little company, Northgate. The group owns a fleet of 38,000 commercial vehicles for hire to businesses which don't want the hassle and inflexibility of running their own company fleet.

The management is now half-way through an ambitious five year plan to double the size of the business, and is proceding without a glitch. By spring 2004 it aims to have a fleet of 50,000 vehicles and 100 outlets around the UK. It is also stalking a number of potential acquisitions in France and Spain, to take advantage of the immaturity of the market in mainland Europe.

In the US, about one-third of all commercial vehicles are hired rather than owned. There is little reason to suppose the UK market, where hiring accounts for just shy of 10 per cent, cannot reach that figure. Northgate professes itself relaxed about a possible downturn in business from its existing customers as the economic gloom continues. It reckons that this could be more than compensated by new business from companies which are driven to cut costs and decide to outsource their vehicle requirements.

Although the economic uncertainty and low inflation have combined to make price increases tough, Northgate has found itself compensated because low borrowing rates have cut its interest charges.

The company yesterday posted profits for the half-year to October which were up 16 per cent to £16.2m. Analysts at Charterhouse Securities expect £31.1m for the full-year, rising to £35m in 2003. That puts the stock, up 27.5p at 517.5p, on a 2003 multiple of 13 times. One to tuck away.

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