Investment Column: Atkins finds road to privatised profit

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The Independent Online
WS ATKINS is a tricky business to understand. It handles a bewildering spread of activities ranging from traditional consultancy for the construction industry to managing privatised roads, helping build the Kowloon to Canton Railway in Hong Kong, and working on decommissioning nuclear reactors.

For a company with this spread of business, Atkins is not that large. Yesterday it reported pre-tax profits of pounds 30.5m on turnover of pounds 365.8m. Nevertheless, it has a terrific growth record - operating profits have quadrupled in the past five years.

This should continue. Atkins has a strong position in outsourcing in the rail and road industries, making it well placed to profit from any boost to spending on transport. It should also benefit from the opening up of similar markets in continental Europe and the Far East, where it already earns a fifth of its revenues.

Property services has recently been more static but Atkins is confident it can expand its private facilities management work while also building private finance hospitals and schools.

The key to Atkins' success, however, will be whether it can win new business while also lifting margins. Return on sales hit a record 5.8 per cent last year but chief executive Michael Jeffries says margins should be more than 6 per cent. The other challenge is to expand internationally. Hence Atkins is ditching its archaic regional structure in favour of three UK divisions: property, transportation and industry, before extending the format abroad. The company also has a pounds 50m cash pile to fund acquisitions.

Atkins' shares have had a tremendous run, more than doubling in value since they were floated two years ago. But on a multiple of 25 times forecast earnings the shares, which rose 4.5p to 555p yesterday, are still cheap for a business with Atkins' growth potential. Buy.