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Atkins sharpens its focus

Strong cash-generator Atkins is trimming the fat, with promising results.
June 12, 2015

Buoyant end markets in the Middle East, Asia Pacific and - somewhat surprisingly - the energy sector were the principal drivers of growth for engineering consultancy WS Atkins (ATK). A series of one-off charges, including £6.9m in impairments on acquired goodwill, depressed reported profit for the March year-end, but this masked a healthy 15 per cent rise in underlying operating profit to £134m. The improved performance also means the group is now nudging its 8 per cent target rate for the underlying margin.

IC TIP: Buy at 1,503p

Operating profit for the group's Middle East business jumped by more than half, thanks to increased activity on major infrastructure projects, including new design work for the Doha Metro Gold Line, a key contract win during the first-half. Despite the low oil price, operating profit for the group's energy division grew by more than a third to £20.4m. The nuclear segment also provided cause for optimism. As part of a joint venture, the business was awarded a contract processing nuclear waste at Sellafield's £1.4bn Silos Direct Encapsulation Plant project.

UK revenue was constricted as key client Airbus reduced work on some of its projects, while additional costs were incurred on some of Atkins' Network Rail signalling contracts. During the year the group sold off its Polish business, which finance director Heath Drewett claims was "margin-diluting". This year, Atkins intends to either close-down or sell its Portuguese business outright for similar reasons. Mr Drewett said the group will focus on expanding in south-east Asian countries such as Indonesia and Thailand this year, where urbanisation and investment in industry provides opportunities for Atkins.

Broker Numis Securities expects adjusted EPS of 100.8p this year, up from 97.1p in full-year 2015.

WS ATKINS (ATK)

ORD PRICE:1,503pMARKET VALUE:£1.5bn
TOUCH:1,501-1,504p12-MONTH HIGH:1,530pLOW: 1,225p
DIVIDEND YIELD:2.4%PE RATIO:17
NET ASSET VALUE: 205p*NET CASH:£179m

Year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20111.5691.074.329.00
20121.7113610930.50
20131.7198.087.032.00
20141.7511498.433.75
20151.7610787.836.50
% change+1-7-11+8

Ex-div: 9 Jul

Payment: 21 Aug

*Includes intangible assets of £299m, or 299p a share