Question of confidence at Amec

The Investment Column

The recent share price performance of Amec, the contracting group, has so far easily justified the shareholders' decision to reject last year's pounds 360m bid from the Norwegian group Kvaerner. The share price, up 3p at 110p yesterday, is now well clear of the 100p a share offered by Kvaerner. But it remains an open question whether the market's apparent confidence in the group is related to future trading prospects or speculation about the future home of Kvaerner's residual 26 per cent stake in Amec.

Yesterday's results for the year to December, showing flat profits of pounds 20m before the pounds 4.1m bid defence costs, will give confidence to the many shareholders who argued that Amec's future is rosy as it recovers from the bottom of the construction cycle. Stripping out the pounds 8.1m cost of preparing claims against Agip, the client on the troubled Tiffany oil platform contract, operating profits jumped from pounds 29.4m to pounds 40.9m last year.

Barring the Tiffany-related loss at the Newcastle offshore construction operation, all the businesses were ahead last year. Profits more than doubled to pounds 11.9m in the construction division add credibility to Amec's claims that the increasing proportion of design-and-build contracts in its portfolio adds value to the business. Competition for this type of business is less - typically four bidders instead of the usual 10, says Amec - fees tend to be higher and there is more flexibility in charging.

Elsewhere, the small Fairclough Homes division did well to turn losses of pounds 2.8m into profits of pounds 2.6m last year. In line with others in the sector, Amec is experiencing a sharp upturn in the market in 1996, with 13 per cent ahead this year. Anticipating the outcome of the "root and branch" review of the group currently being undertaken, new chief executive Peter Mason yesterday emphatically ruled out a sale of the housing business.

Mr Mason is confident that 1996 will be a "noticeably" better year than 1995. The group will be without the millstone of the Tiffany contract, order books are at record levels in many areas and margins are expected to improve as more profitable work taken on recently comes through to the figures.

But risks abound. Despite Mr Mason's confidence, competition continues to be intense in areas like structural steelwork and even design and build is not immune from margin pressures. It is not clear that Amec has the balance-sheet strength to compete effectively in the Government's private finance initiative against better-placed rivals like Laing and Tarmac. Meanwhile, its homes business is too small, but the write-off on a sale would probably wipe out shareholders' funds. Profits of pounds 33m this year, putting the shares on a prospective multiple of 17, is still a meagre return on sales of pounds 2.5bn. The limited prospect of a bid is the only reason for holding the shares.

Little substance at Nurdin

For an unglamorous cash-and-carry operator, Nurdin & Peacock has been the subject of a good deal of attention of late - most of it takeover talk. This has been good news for the share price, which has risen sharply this year since a February profits warning. Sadly, for investors, nothing seems to have materialised.

Booker, the rival food and cash and carry group most recently tipped as a predator, played down bid rumours last month.

The other possibility is SHV Makro, the Dutch group, which holds 14 per cent of Nurdin's stock and is now free to increase its stake. All is quiet here too and after management changes at Makro, the two no longer speak to each other.

The other block is the Peacock family which controls 30 per cent of the equity and is showing no signs of selling. All this leaves the share price reliant on the performance of Nurdin's core cash-and-carry business, which is barely treading water in a shrinking market dominated by large competitors.

Pre-tax profits of pounds 19.6m were in line with February's warning but the operating figure of pounds 24.5m is still lower than last year. Like-for-like sales were up by 4 per cent last year, but this year is proving tougher with the sales uplift slowing to 2 per cent in the three months since the year-end.

While Nurdin will continue to mop up smaller cash-and-carry operators, it is pinning much of its hopes on building its delivery business, servicing independent retailers and corner shops.

The margins are better - about 4 per cent compared with less than 2 per cent in the core business - but the key to success is building sufficient economies of scale.

Nurdin is looking to grab 10 per cent of the delivery market - equivalent to pounds 350m of sales - within the next few years. Hence yesterday's pounds 400,000 purchase of Thompson Wholesale Foods, a Manchester-based delivery group.

More deals like this are needed to help shrug off an unhelpful sales mix in the core business, which is skewed towards lower margin orders of tobacco, wines and spirits. The belated introduction of electronic stock ordering systems should also help but may not be enough.

With analysts expecting profits of pounds 24.5m this year and with the shares 1p higher at 175p yesterday, Nurdin is on a forward rating of 13. With bid hopes receding, the shares look set for a period of drift.

BP warms to higher oil prices

British Petroleum's annual meeting statement yesterday that it intends to raise its profits by a half over the next five years is welcome news for shareholders. It largely confirmed the strategic plans outlined to analysts last month, but with news of higher oil prices gave an added boost to sentiment and the shares added 5.5p to 591.5p.

The earnings target translates into 8 per cent year-on-year growth or another $1.5bn on the bottom line, something shareholders will share in directly through the group's dividend policy. John Browne, BP chief executive, said the guideline now was to pay out half underlying earnings to shareholders. He has already hinted there could be special payouts or share buy-backs if the earnings target is exceeded.

Add in plans to keep debt to below $8bn and to grow capital expenditure to close to $6bn and BP has presented a dream scenario to investors. But as Mr Browne admitted, around 80 per cent of the improvement in the past three years has come from cost-cutting and in the future the group must put more emphasis on growth. His target is for over half the uplift in performance to come through top-line expansion.

Since 1992, BP has led the industry in selling off peripheral assets and improving the focus of its capital expenditure. Its decision to merge its European refining and marketing with Mobil shows there is still scope for further innovation on this front.

But it remains to be seen whether it can achieve the same returns from genuine growth. Traditionally reliant on mature fields in the North Sea and Alaska, BP is confident it can raise production by up to 5 per cent a year and still more than replace reserves into the next century. That is a heroic assumption, even with new discoveries.

Assuming net income of pounds 2.5bn this year, the shares stand on a forward rating of 14. That looks fair value, particularly since, despite their recent outperformance, the shares have just caught up with Shell on a five-year view.

PROMOTED VIDEO
News
Nadine Gordimer died peacefully at home yesterday
people
Arts and Entertainment
Neil Young performs on stage at Hyde Park
musicAnd his Hyde Park set has rhyme and reason, writes Nick Hasted
News
Women have been desperate to possess dimples like Cheryl Cole's
people Cole has secretly married French boyfriend Jean-Bernard Fernandez-Versini after just three months.
Arts and Entertainment
AKB48 perform during one of their daily concerts at Tokyo’s Akihabara theatre
musicJapan's AKB48 are one of the world’s most-successful pop acts
News
Ian Thorpe has thanked his supporters after the athlete said in an interview that he is gay
people
News
The headstone of jazz great Miles Davis at Woodlawn Cemetery in New York
news
Arts and Entertainment
Brendan O'Carroll has brought out his female alter-ego Agnes Brown for Mrs Brown's Boys D'Movie
filmComedy holds its place at top of the UK box office
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
newsBear sweltering in zoo that reaches temperatures of 40 degrees
Arts and Entertainment
Professor Kathy Willis will showcase plants from the Royal Botanic Gardens at Kew
radioPlants: From Roots to Riches has been two years in the making
Extras
indybestThe tastiest creations for children’s parties this summer
Arts and Entertainment
TV The follow-up documentary that has got locals worried
Arts and Entertainment
Paolo Nutini performs at T in the Park
music
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Programme Planner

£30000 - £45000 Per Annum: Clearwater People Solutions Ltd: Our client based i...

Service Desk Analyst - ITIL, Windows, Active Directory

£35000 per annum: Harrington Starr: A world leading brokerage is looking for a...

IT Support Technician - URGENT - Graduate, Windows, MS Office

£30000 per annum: Harrington Starr: My client, a researcher of investment idea...

MQ Unix / Linux Systems Engineer - URGENT - Unix, Linux, MQ

£63000 per annum: Harrington Starr: A market leading provider of technology dr...

Day In a Page

Super Mario crushes the Messi dream as Germany win the 2014 World Cup in Brazil

Super Mario crushes the Messi dream

Germany win the 2014 World Cup in Brazil
Saharan remains may be evidence of the first race war, 13,000 years ago

The first race war, 13,000 years ago?

Saharan remains may be evidence of oldest large-scale armed conflict
Scientists find early warning system for Alzheimer’s

Scientists find early warning system for Alzheimer’s

Researchers hope eye tests can spot ‘biomarkers’ of the disease
Sex, controversy and schoolgirl schtick

Meet Japan's AKB48

Pop, sex and schoolgirl schtick make for controversial success
In pictures: Breathtaking results of this weekend's 'supermoon'

Weekend's 'supermoon' in pictures

The moon appeared bigger and brighter at the weekend
Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor