Amec Foster Wheeler’s figures for 2014 are a true nightmare to understand, not helped by the company’s use of a revenue measure — taking out from the total any turnover on which the company does not make a profit — that is as far as I know unused elsewhere.
This shows those core revenues up 2 per cent to £3.92 billion. By another measure, and taking in seven weeks of numbers for Foster Wheeler, that the engineer bought in November, which totalled £274 million, they were unchanged at £3.99 billion.
Pro-forma numbers for them both, pretending they were under the same ownership for the whole of 2014, show revenues of £5.8 billion, down from £6.1 billion in 2013 and £6.2 billion in 2012. Both are exposed to oil and gas, about 50 to 60 per cent of all revenues, but Foster Wheeler is more focused on downstream activities such as refineries that ought to hold up better than constructing oil rigs from fresh, which is more where the old Amec made much of its money.
Enough. Let’s look at where the combined group will be this year. Revenues should come in about the same. The order book at the end of last year stood at £6.3 billion, down £200 million.
Amec has warned of pressure on margins, as those upstream clients look for better value from contractors on projects that do go ahead. Trading margins were already off last year, from 8.9 per cent to 8.2 per cent.
On the upside, the company has raised the amount of savings from the merger to $125 million, from an initial $75 million, to be achieved over the next three years. This will offer cost savings of about £40 million this year and another £15 million benefit from the stronger dollar against the pound.
Analysts think all this will balance out, and 2015 earnings per share will be little changed on 2014 at 80p. The total dividend is up by 3 per cent to 43.3p. Assume a similar rise, within the cover Amec expects to maintain, and the yield is 4.7 per cent.
This provides a decent support and explains why Amec, along with other oil services businesses, has not had its shares collapse as far as some pure oil companies. On almost 12 times earnings, the shares, off 22½p at 950½p, do not look worth buying just now, though.
Revenue £4bn
Dividend 43.3p
MY ADVICE Avoid for now
WHY Shares offer a good dividend yield, but margins will be under pressure in oil and gas and benefits of Foster Wheeler deal are still not clear
The market has taken a long time to warm to Polypipe, whose shares, floated at 245p, are approaching their first anniversary on the stock market. This may be because Cavendish, the private equity house, was sitting on a 17 per cent stake of the plastic pipes maker after the flotation and the assumption was that, once the price began to make any headway, those shares would hit the market.
In fact Cavendish sold almost 10 per cent before Christmas, and the shares have indeed made progress since, though they were off 1¾p to 264¼p after the 2014 figures. These contained few surprises; the UK construction market was strong, both housebuilding and infrastructure, although repairs and maintenance were less so, this market always lagging behind second-hand housing transactions by a year or more.
The Continent was weak, as economic trends hardly favoured much spending and because of the strength of sterling, and not much is going to change here even if this is only about 16 per cent of sales.
Operating profits came in 17 per cent higher at £46.3 million. Polypipe aims to grow through greater use of plastic pipes in UK construction and from their use in water, heating and ventilation, areas in which it has made two acquisitions in recent months. It is also increasing sales to the Middle East, although this is of limited importance so far.
The shares yield 3 per cent on this year’s numbers, a useful support. Conclusions are made difficult by the lack of any obvious quoted comparator, but on 14 times earnings they look fairly priced.
Revenue £327m
Dividend 4.5p
MY ADVICE Avoid for now
WHY Share rating looks about right after recent gains
It has been a long process since the advertising agency went into the global financial crisis in 2009 with a share price of just 26p, but the rejuvenation of M&C Saatchi is probably now about complete.
The US operation has been turned around. The company has bought or built a global network with toeholds in areas such a China and India, an office now open to serve high-tech companies in Israel and the prospect of entry into other high-growth markets such as Turkey.
The heavy investment has been done. Further growth will come as the US improves from little better than break even, from those growth markets into which Saatchi has moved, from cross-selling other skills such as mobile phone advertising and PR, and from the lower investment needed. This last should allow margins to grow from 11 per cent in 2014 to the mid-teens fairly shortly.
Last year’s figures, therefore, are something of a work in progress, pre-tax profits up 17 per cent to £17.2 million, with a figure of £20 million in prospect for 2015. The shares, off 12½p to 347p, are back from approaching 400p this month and sell on a more affordable 19 times earnings. Buy long term.
Revenue £169m
Dividend 6.27p
MY ADVICE Buy long term
WHY Hard work is done; growth still to come
And finally . . .
HarbourVest Global Private Equity has been talking about graduating from the LSE’s specialist fund market to the main market for some time, but the fund of funds has now indicated that, with US share ownership below 50 per cent, the time is at last right. The main beneficiaries will be retail investors, who will find the shares easier to buy. I have tipped HarbourVest in the past for its exposure to more than 700 private equity funds. It is a complex process, and the shareholders’ vote is not expected until August.
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