Saturday 21 April 2018

Share watch: Will builder prove safe bet in era of Brexit and Trump?

WS Atkins handled the structural engineering for the Burj al Arab in Dubai, one of the world’s most recognisable buildings. Photo: AFP/Getty Images
WS Atkins handled the structural engineering for the Burj al Arab in Dubai, one of the world’s most recognisable buildings. Photo: AFP/Getty Images

John Lynch

Regular readers of these pages will know we are lost in admiration for individuals and corporations who have a well-founded reputation for building things. The bigger, indeed, the better.

As a rule these world-beaters can be relied upon to overcome the most formidable obstacles. Since the twin bugbears of Brexit and Donald Trump have made their largely unwelcome appearances in the last few months, these world-class builders have been considered 'hedges' against stock market disappointment.

One is British company WS Atkins - a highly rated engineering consultancy involved in designing, planning and project management to multiple industries. Its main areas of operation are the US, UK and Europe, with business in Asia and Middle East. Listed in London, the 82-year-old company has expanded into a corporation with 18,000 employees, revenues of £1.82bn (€2.08bn) and market value of £1.5bn (€1.71bn).

Two years ago Share Watch threw a 'slide rule' over Atkins. We were impressed with its handling of large projects including the structural engineering for Burj Al Arab, the six-star hotel in Dubai, arguably the best recognised piece of architecture in the world after the Empire State Building and the Sydney Opera House. We also noted it was designing a new metro transport system for Mecca and is involved in the theme park in Orlando, Florida, known as the 'Wizarding World of Harry Potter'.

Atkins has made further progress since then, though it hasn't entirely escaped the recessionary trends.

The UK is still its biggest and most important market, with almost 50pc of group revenue and profits. Since we last looked at it, the company's objective of reducing its dependence on the UK market has made little headway. The recent acquisition of the multi- discipline consultancy in East Africa is unlikely to make much difference.

Atkins has, however, shown strong performance thanks to the UK decision to upgrade its motorways and A roads. In addition, it continues to benefit from the upgrading of the UK's run-down rail system. Thus it is well positioned for any post-Brexit infrastructure investment.

North America is its second largest market, accounting for 20pc of group revenue but only 14pc of profits. However, the division is in transition. For the future the company has decided to bid for larger projects. Can Atkins gain traction from Mr Trump's promise of fiscal stimulus? We fancy it will.

The company's geographical spread also includes the Middle East and Asia-Pacific regions and its combined revenues account for only 18pc of the group's business. Atkins has been successful in the Middle East by focusing on transport/infrastructure and concentrating on specific markets, like Qatar, Saudi Arabia and UEA. However, low oil prices have made things 'challenging'.

Atkins' energy division continues to make progress, with revenues up to £200m (€228m), an 18pc increase since we last reported. The results were mixed, its nuclear power and renewable business having a satisfactory performance, but oil and gas disappointed.

Earnings continue to impress. Its profit before tax was £139m (€159m), up from £114m (€130m) in 2014 on revenues that increased to £1.86bn (€2.12bn), up from £1.72bn (€1.96bn) over the same period. The group's liquidity remains strong, with a price earnings multiple of 17 and valuing Atkins at £1.5bn (€1.71bn). The share price trades above £14.80 (€16.81), up from £12.40 (€14.18) two years ago but below its 10-year high of £17.50 (€20.02) late last year.

The company is fortunate it has the benefit of income streams with long duration, together with improved margins. While we were of the opinion Atkins was an attractive share two years ago, we also stated it was expensive due to the exchange rate; this is not the case today.

But remember, it could be cheaper after March when Theresa May starts to pull plugs and Brexit begins to bite.

Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy any of the shares mentioned

Irish Independent

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