Diversified, sturdier Atkins too cheap

Atkins provides planning, design and project management services primarily around infrastructure, transport and utility projects, as well as some engineering consultancy services to the wider market. The group has an established track record of gaining government contracts. For example, its transportation business has been appointed by Highways England as one of its key suppliers on the Collaborative Delivery Framework (CDF), its largest ever framework for the improvement of England's motorways and major A roads. Under the CDF, Atkins and CH2M were awarded the detailed design contract for the £1.5bn A14 Cambridge to Huntingdon upgrade programme. Along with CH2M and SENER, Atkins also won a 10-year contract last year to become engineering delivery partner for High Speed 2, valued at between £250m and £350m for the consortium. This is a good example of the type of work that gives Atkins a secure, long-term income stream.

And should expectations of rising spending on infrastructure prove well founded, Atkins should benefit. Appearing before the House of Lords economic affairs committee earlier this month, chancellor Phillip Hammond said he was ready to "reset" the government's economic policy post-referendum, taking advantage of the low cost of borrowing. This could include investment in rail and road projects, which Atkins should stand a good chance of taking a slice of.

Atkins has also established itself as a major engineering support provider on some sizeable projects outside the UK and Europe, where it generates half its revenue and profit. In North America - the group's second-largest market by sales accounting for a fifth of the total, although only 14 per cent of profit - Atkins has started to shift its portfolio towards larger programmes. Earlier this year, it began work on the Purple Line light rail project in Maryland and it has also been appointed to Project Neon for the Nevada Department of Transportation, the state's largest ever and most expensive public works programme. The group already has an established presence in the UK nuclear sector, and is making inroads into the North American nuclear market, acquiring PP&T last year. This is helping prop up the energy division which has been hit by the travails of the oil and gas industry.

In the Middle East, management has concentrated on transportation, infrastructure and property in the UAE, Qatar and Saudi Arabia - which it believes to be the region's more robust markets and sectors. Winning contracts such as the Riyadh and Doha Metros and large-scale building work linked to the Dubai Expo 2020 has kept operating profit growing strongly, up a third last year. However, Atkins has not been able to escape the effects of a persistent low oil price. At the end of March, 48 per cent of this year's revenue had been secured, down from 74 per cent the previous year, and cash collection has become more challenging.

Performance in the Asia Pacific region has also suffered recently due to a slowdown in the Chinese property market. In Hong Kong, the largest part of the Asia Pacific business, there has also been a slowdown in the rate of government funding approval and increased competition when bidding. As a result, revenue and operating profit declined last year. However, in its most recent update, management said it had started to see a pick-up in activity in the market. In keeping with its diversification efforts, the Atkins Acuity advisory business has been forming strategic partnerships with engineering companies and contractors in South East Asia particularly, where rapidly developing population means demand for vital infrastructure is high.