The Investment Column: Cash-rich Amec is keen to engineer acquisitions

Galliford Try; Phytopharm


Our view: Buy

Share price: 849.5p (+23p)

According to the engineering group Amec's chief executive, Samir Brikho, there is absolutely nothing to worry about. Indeed, he is so confident about the company's future that he does not see any risk for the next six or seven years.

Amec issued a trading statement yesterday saying that 2008 Ebitda margin expectations had edged up to 6.5 per cent from 6 per cent. Net cash will exceed £600m, which will enable the group to "make selective acquisitions".

The stock has performed well since dipping as low as 642p in January, but the analysts reckon there is plenty more to come. Those at Merrill Lynch say that trading at 8.3 times EV/Ebitda, Amec operates at an 11 per cent discount to UK-based oil services companies. The analysts reckon the shares are on their way to 1030p, and investors should buy now. They largely agree with Mr Brikho's risk assessment, saying, "there is currently a wide gap between the industry's cash generation [$65 to $140 a barrel] and investment basis [$40 to $60 a barrel], it would take a dramatic fall in oil prices, in our view, to see industry spending patterns change significantly".

The company itself does not like commenting on the share price, however it does get a bit hot under the collar about a note from Seymour Pierce, dismissing it as uninformed. The analysts say that while the company has done well in recent years, that performance is already priced into the stock and the shares do not have any capacity left.

There are not many sectors that are performing like oil. As other markets suffer, so more buyers will be attracted to the black stuff and companies that operate in the oil market. There is more room for growth. Buy.

Galliford Try

Our view: Cautious hold

Share price: 32.5p(+4.75p)

Yes, ok, Galliford Try is a builder, but before readers move straight down to the next piece assuming that anything connected with building is toxic, investors will be interested to learn that the group's stock leapt 14.6 per cent by yesterday's close. The shares spiked after an upbeat trading statement, which said that full-year profits will be in line with forecasts, at no less than £60m.

The obvious point to note is that this is in stark contrast to the rest of the sector. The press is full of premature obituaries for the likes of Taylor Wimpey and Barratt Development. However, this presents an opportunity for investors, say watchers at Numis. They agree that the sector is "terminally ill" but management's strategy of running the company for cash is "proving successful".

Despite Numis ascribing no value to the housebuilding operation, they say that, "putting zero value on housing, construction on 8 times and affordable housing on 10 times (in line with our concerns that new build here could be vulnerable) gets us to 60p, still 82 per cent above the current share price".

All fair enough, but before investors get too carried away, remember the building sector is close to imploding, and even Galliford's chief executive, Greg Fitzgerald, says that things are getting tougher in house building, but points out that the market misses the fact that the company is a much bigger contractor. There will be no increase in dividend, and margins will be hit by the market.

Experts at Merrill Lynch go further, arguing thatpre-tax profit this year will be £60m, resulting in earnings per share of 11.1p, changing to £39m and 7.4p next year respectively. Cautious hold.

Phytopharm

Our view: Hold

Share price: 20.25p (-0.25p)

There is a plethora of small drugs companies spending lots of money developing what they hope will be the next blockbuster cure for a nasty disease. The problem is that often they raise money to put the treatment through the first few trials and then run out towards the end of the process.

That is why analysts at KBC say Phytopharm, which issued a positive trading statement yesterday, is different. The group makes an appetite suppressant, Hoodia, which is due to be used in Unilever's Slim Fast dieting products; the group hopes that this will fund research for its other treatments for the likes of Parkinson's.

UK biotech groups do not have a history of doing well for shareholders. Some do eventually come good, usually by being bought by one of the pharma giants. The only companies that ever do well have plenty of cash. With its Unilever tie-up, Phytopharm hopes to join those ranks. KBC says Hoodia has a 50 per cent chance of phase three trial success, which has already been funded. Hold.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
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

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss