Investment Column : Atkins builds on traditional design

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The Independent Online
WS Atkins is thumbing its nose at the current turmoil in the new issues market. Undaunted by signs of indigestion amongst institutional investors, the market debut of the engineering to facilities management consultancy group has been priced at the upper end of expectations. Yesterday's placing at 215p puts a historic multiple of close to 17 times on the shares, more than a full point above the rating on the FT All-share. But advisers say the issue went down well with institutions at marketing presentations, an assertion which seems to have been borne out by the placing's one-and- a-half times oversubscription.

Certainly the past trading performance can hardly be faulted. Pre-tax profits have expanded relentlessly from pounds 7.08m in 1992 to pounds 19.8m in the year to March. This impressive growth in the face of one of the worst construction recessions since the war has been heavily influenced by acquisitions, although earnings per share have also grown from 4.9p to 12.8p over the five years.

Atkins has purchased businesses to diversify out of its traditional business in civil and structural engineering design. Acquisitions have included the Property Services Agency building management operation, a tunnelling consultant in Hong Kong, railway engineering consultants and Faithful & Gould, a quantity surveyor and cost engineering consultancy, picked up earlier this year for pounds 21.1m.

New businesses, along with substantial property management and highway engineering contracts for various local authorities, mean that so-called support services represent 22 per cent of underlying operating profits. Ironically, though, it is the traditional business which has seen all the growth recently. Profits from the core division soared from pounds 3.88m to pounds 9.92m last year as final payments came through on massive construction and engineering projects like the multi-billion pound Al Yamamah defence contract and the 1,000-ft high Chicago Beach resort, both in the Middle East.

The risks, political and otherwise, are also currently concentrated in the new businesses. Profits could top pounds 25m this year, cutting the multiple to nearer 13. Not to be chased in the current state of the market.