What’s new
■ Positive analysts visit
■ Nuclear work offers impressive growth prospects
■ Compelling valuation
Analysts reacted positively to a recent visit hosted by energy and environmental consultant, AMEC, to the Sellafield nuclear site - where the group is working on a decommissioning framework contract. The nuclear segment accounts for around 10 per cent of AMEC’s revenues but a larger share of profit - estimated at 16 per cent - due to higher margins.
AMEC set out an ambitious growth programme last December entitled Vision 2015, which aims to more than double earnings per share to over 100p in 2015. Growth in the nuclear segment is part of a wider improvement in the Power and Process division's revenues and margins. With older nuclear plants reaching the end of their lives and coming up for decommissioning, the building of new nuclear plants will be vital to the UK's future energy security.
The peak workload on building new plants will be reached in around 2020, according to brokers, and could boost AMEC's revenues by up to £150m a year. This is equivalent to over 60 per cent of existing nuclear revenues and could equate to an uplift of 30 per cent on the entire Power and Process division’s 2009 profits.
Westhouse says...
Buy. AMEC is exposed to the nuclear sector through the Sellafield contract, as well as having a strong international position, particularly in Canada. This was a good opportunity for buy and sell side analysts to understand AMEC’s exposure to the expanding nuclear sector and to learn about the company’s strategy for growth. We continue to believe that, with Vision 2015 expecting EPS of more than 100p by said date, as well as continued efficiencies and targeted acquisitions, the shares still offer substantial upside.
Collins Stewart says...
Buy. We continue to believe that AMEC offers the best risk-and-reward balance in our oil services coverage. The shares offer an excellent combination of strong growth (13 per cent per EPS growth per year for 2009-13) and low risk. We think the valuation is compelling, with a cash-adjusted price to earnings ratio of only 10.5 times 2011's earnings and 25 per cent upside to our discounted cash flow valuation. We also think the ability to replicate the Sellafield contract, as future decommissioning management contracts become available at Douneray and the Magnox sites, is a material source of potential upside. AMEC grew adjusted EPS 6 per cent in 2009 and we see 17 per cent growth in 10E [to 55p].
