Business background and investment rationale
AMEC PLC is an international consultancy, engineering and project management company providing services to the world’s energy, power and process industries. The company designs, maintains and manages the delivery of strategic and complex assets. These include offshore oil & gas production facilities, metals or mineral mines, and power infrastructure.
Improve EBITA margin and strong financial position
Driven by its own internal initiatives AMEC expects to deliver improvements in EBITA margin over the next two years. The Operational Excellence program is expected to be the major contributor in achieving a target margin of 8.5% in 2010. The group is in an exceptionally strong financial position with a relatively well-funded pension scheme, and expects average net cash of £625m for 2008.
Strong order book
In the second half of 2008, despite extreme volatility in the financial and raw materials markets, Amec was awarded contracts close to £2bn. The company also has a £3bn backlog in the Natural Resources and Power and Process divisions which gives good visibility for 2009 and beyond. Of the £2bn in new contracts, £1bn was awarded to oil and gas, including technical consultancy services for JSC National Company KazMunayGas (KMG); the National Oil Company of Kazakhstan for all of its projects; an Engineering and Maintenance Services contract for Chevron Australia; two contracts for Apache North Sea Limited; and a five-year management consultancy contract for Zakum Development Company in Abu Dhabi, United Arab Emirates. The Natural Resources order book at the end of December was £1.7bn, representing a gain of 40% since the beginning of the year. The division is expected to deliver an EBITA margin of 10.5% for the calendar year 2008. In the Power and Process division, Amec’s consortium with AREVA and URS Washington Division recently landed the Sellafield management and operations contract by British Nuclear Fuels Ltd. The contract is valued at £1.3bn per annum, with the associated fee of up to £50m per annum for a period of five years. There is the potential for a further contract extension of 17 years subject to performance being met.
Technical outlook
On daily chart, stock is making a higher low and is 46% up from October’s low of 373.5. MACD is positive and RSI is above 50 indicating strength in trend, and both the indicators are making positive slope from October’s low, which is further strengthening the uptrend. DMI is flat and stochastic is overbought showing some consolidation above 530.0p for the short term. Stock has support between 530p-550.0p and resistance at 600.0p.
Trading strategy
The stock can be bought around 550p with a profit target 613.4p and stop loss of 522.4p (Hedge position: short position in spread betting with £2.27bet per point).
Business background and investment rationale
Whitbread PLC is a hotel and restaurant group managing several brands including Premier Inn, Brewers Fayre, Table Table, Beefeater and Costa Coffee.
Expansion of Premier Inn and Costa Coffee
Premier Inn emerged as the UK’s fastest growing and largest hotel group after it opened 14 new hotels in 2008, incorporating 1,380 rooms. The group is on course to add a further 4,000 rooms in 2008/2009. For the 39 weeks to 27th November 2008, the Premier Inn budget hotel chain - which accounts for about 70% of profits - had outperformed the wider hotel market, with total sales up 16.4% and revenue per available room (RevPAR) increasing by 5%. The business account continues to attract new customers; with new users up 16% and total sales via this channel up 33%. Total sales achieved in Costa during the period are up 22.6%. Like-for-like sales are up 2.6%. Whitbread has expanded Costa substantially and the total number of outlets now stands at 1,239, across 26 markets. Looking at the challenging macro economic conditions, Whitbread has decided to limit its capital expenditure next year to around £200m compared to approximately £300m in 2008/09.
Restructuring of business
In 2007 Whitbread sold David Lloyd Leisure and TGI Friday’s to focus on the Premier Inn hotels, alongside a pub/restaurant model that generates superior industry returns. To eliminate duplication and better align company interests, Whitbread announced it would combine the hotel and pub restaurant divisional management teams, and outsource its logistics operation to Kuehne & Nagel. The full £25m savings will be realised by the end of 2010/11, with £20m achieved by the end of 2009/10. Whitbread responded well on food and energy cost inflation by improving operating efficiencies and putting lower cost options on its menus. This resulted in the group’s operating profit margin increasing to 20% up from 19.3% last year.
Technical outlook
On daily chart, Whitbread is making a positive slope with higher lows and is near to its strong support of 800.0p. Stock has raised 25% in the last two times from support of 800.0p. MACD is negative and 12-day EMA is cross below 26-day EMA, indicating stock will fall further. 14-day RSI is also below 50 supporting downward move. Stock has strong support near 800.0p and if it breaches it has support near 765p. Stock has resistance near 864.0p level and if it rise above resistance can found near 1000.0p.
Trading strategy
The stock can be bought around 820.0p with a profit target 914.54p and stop loss of 778.9p (Hedge position: Short position in spread betting with £1.52 bet per point).
Associated British Food
AB Food is in a consolidation phase trading around an entry point of 665.0p, and it handled last week’s down turn in markets fairly well. MACD is negative and 12-day EMA is cross below 26-day EMA indicating downtrend. RSI is also below 50 indicating weakness in trend and DMI is above 25 indicating a downtrend is forming. -14 DMI is cross above +14 DMI confirming the downtrend. AB Food has strong support at 650.0p and if it holds above this level for this week, profit should be taken at 700.0p.
Compass Group PLC
Compass has made a low of 325.25p, near to its entry level of 322.0p, so entry is taken at this level only. Stock has hold at the 330.0p level after the downturn in markets last week and has not broken uptrend, indicating a strong uptrend. It is still above 20-day, 50-day and 200-day EMA which supports the uptrend. MACD is positive and RSI is above 50 showing positive trend. Looking at the trend, stock should be hold with the same profit target and new stop loss of 308.94p.
Amec PLC
