The Investment ColumnAmey thrives on PFI contracts

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The Independent Online
Amey is best known for being one of several companies to have made a killing from rail privatisation, having picked up British Rail's western region track maintenance business for a remarkably low pounds 15m earlier this year.

Less apparent is Amey's ability to win Private Finance Initiative contracts when other contractors are bad-mouthing the whole government exercise as slow, inefficient and hideously expensive. Amey's latest PFI scoop - as part of a consortium behind a pounds 370m scheme for a dual, three-lane motorway linking the M6 at Carlisle to the M74 120km further north in Scotland - helped push the shares to their highest level since they were floated on the stock market in 1994.

Analysts say the 30-year concession should net Amey about pounds 30m, or an extra 10 per cent, in annual turnover at margins which ought to be better than those scored under the traditional open tender system. Amey will also have to put up about pounds 3m in equity funding, but the deal is expected to be cash-flow positive from a very early stage as the Government, in the form of the Scottish Office, pays the contractor what amounts to shadow tolls.

The M6/M74 contract is the third PFI project landed by the Amey consortium in the past six months. It has also been awarded the pounds 330m contract to design, build and operate the A19/A1 extension to the Tyne tunnel in the North-east and a pounds 175m project to build the 17-mile Croydon tram link system in the South-east.

These contracts effectively secure Amey's civil engineering workload for the next two years and provide valuable long-term facilities management and business. And with the Government's road-building programme at a virtual standstill, Amey is well placed to pick up road maintenance work.

But the real kicker for investors is the rail infrastructure maintenance company bought for just pounds 15m from British Rail this year.

The first of Amey's rail maintenance contracts with Railtrack does not come up for renewal until 1999. By then Amey should be in a strong position to negotiate favourable terms if it has built up a strong track safety record.

For the time being house broker James Capel is sticking with its 1997 pre-tax profits forecast of pounds 13m, implying a price/earnings ratio of just over 14 times with the shares up 21p at 373.5p.

The shares, as low as 118p last year, have built up a formidable head of steam, and have further to go.