The Investment Column: Atkins deserves a higher rating

Click to follow
The Independent Online
WS Atkins must wonder what it is doing wrong. In the past, the group has produced compound earnings growth of about 25 per cent a year. It operates in the fast-growing areas of outsourcing and facilities management - running prisons, managing road building programmes for example.

The company has pounds 74m of net cash on its balance sheet - less than half of which belongs to its customers. Yet compared to more established peers such as Serco, Atkins' shares are on a pitifully low rating.

True, Atkins hasn't been around as long as Serco. It is also less exposed to outsourcing than its larger rival, relying on that area for about 50 per cent of its revenues. And Atkins shareholders have not done badly - they are sitting on a 66 per cent profit from last year's flotation price of 215p. The shares put on another 7.5p to 357.5p yesterday.

Nevertheless, on the evidence of its interim figures, Atkins deserves better. The 31 per cent jump in operating profits to pounds 8.4m, achieved on a 14 per cent rise in turnover, was almost entirely the result of organic growth.

Atkins still relies on the public sector for about half its revenues. But the private element is growing faster, as is the proportion of sales from overseas, which grew by 19 per cent despite the impact of the stronger pound. Chief executive Michael Jeffries is targeting South East Asia and the US - where Atkins is hoping to cash on its oil industry expertise- as growth areas.

He claims the recent dearth of deals is the result of prudence rather than lack of activity, and argues that Atkins has plenty of good ideas for its spare cash. Brokers are forecasting full year profits of pounds 20m, putting the shares on a forward p/e ratio of just 18. Given Atkins' track record and growth prospects, a re-rating looks overdue. Cheap.

Comments