Investment Column: Take the easy option: buy Amec shares

Unite Group; Sportech
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The Independent Online

Our view: Buy

Share price: 891.5p (+43p)

The industrial services group Amec is an easy tip – a fact confirmed by yesterday's first-half financial results.

With revenues up by 13 per cent to £1.4bn, earnings before interest, tax, depreciation and amortisation up 20 per cent to £114m, and the forward order book at a healthy £3.5bn, Amec says it is in no doubt it will hit its 8.5 per cent margin target. And the company is upping its interim dividend by 20 per cent to 7.3p per share.

The engine of growth is the group's natural resources division – which includes oil and gas services, oil sands and mining and metals. Revenues up by 16 per cent to £731m were helped by a string of contract wins including a five-year servicing agreement with BP in Azerbaijan and the front end engineering and design for Chevron's Mafumerira Sul project off the coast of Angola. But the power and process arm, which includes nuclear and renewables in the UK and overseas, also made significant gains in terms of both revenues and margins.

The chief executive, Samir Brikho, is full of confidence: "Amec has delivered a record first-half performance, with 6 per cent organic revenue growth and improvements in each of the three divisions," he said. "We expect this momentum to continue. The interim dividend has been increased by 20 per cent and reflects the board's continuing confidence in the group's prospects."

He has reason to be cheerful. In the short term, analysts expect a second half even stronger than the first. In the longer term, notwithstanding any regulatory drag from the Gulf of Mexico oil spill, the global energy sector shows little sign of slowing.

The group's price-earnings ratio is currently estimated at 16.2 times by Seymour Pierce.

And although the share price has not made entirely smooth progress over the last year, it has still gained convincingly this year and can be expected to head up beyond 900p again. Until then, Amec is a buy.

Unite Group

Our view: Buy

Share price: 184p (+2.5p)

Unite, Britain's largest listed student landlord, has seen the value of its assets rise by a healthy 8 per cent over the first half of the year.

Looking ahead, the company expects rents to grow by as much as 4 per cent over the full year, which, if achieved, would be a creditable performance given the uncertainty that continues to plague the outlook for the wider economy in general and the property market in particular.

And while investors should be mindful of the fiscal squeeze and its impact on university funding, these concerns shouldn't obscure the opportunity presented by the fact that student accommodation market continues to suffer from a shortage of supply.

Moreover, cost cutting is liable to drive greater reliance on the private sector. It is also worth noting that while the Government's moves could lead to a slowdown in the overall growth in the student population in coming years, international intake is expected to continue growing (strongly, according to Unite). That in turn promises to drive demand for accommodation and, by implication, business for the likes of Unite.

And yet, despite the positives outlined above, the shares trade on a considerable – and in our view unwarranted – 40 per cent discount to KBC Peel Hunt's net asset value forecasts. The wider sector, on the other hand, is on a discount of only 25 per cent. Buy before that gap closes.


Our view: Hold

Share price: 38.25p (+0.25p)

Sportech boasts the oldest football gaming business in the world with "a history and heritage which is unparalleled across the world": the footie pools to you and me. The only problem is that these days the pools have just a fraction of the 10 million players they pulled in weekly in the early 1990s and remains somewhat reminiscent of a bygone age.

And yet, the pools are still here. As, come to that, is Sportech. Four years ago, when the current managing team took over, there were few punters who would have bet significantly on either. The first half of the year saw progress for the managers who have been working hard to turn the business round. Although profits were down on last year at £6.9m, the pools business has shown signs of stabilising and has about 500,000 weekly players.

Sportech said that it was concentrating on modernising the core business, as well as developing its electronic gaming operation. It also seems that crucial to its growth is diversification, with the proposed acquisition of Scientific Games Racing, which will do just that. It has also launched a joint venture in India. Analysts see it as a good bet on a pro-forma price of five times full-year earnings. We tend to agree, it seems a bit early to pile in. Hold.