Investment: Amec services boost shares

FOR AN illustration of how the British economy is changing, look no further than Amec. The construction group has long got its hands dirty with large civil engineering projects and housebuilding. But recently it has been building up its exposure to services.

Yesterday, Amec pointed out that two-thirds of total first-half operating profits of pounds 26m came from services, which range from providing facilities management for North Sea oil platforms, to maintenance contracts for Railtrack.

Investors promptly boosted the shares - which have suffered from the general gloom about an economic slowdown - 10p to 149p.

This is no surprise. Stock markets like steady, dependable earnings streams and they don't get much more predictable than facilities managements contracts - which traditionally run for several years. That said, investors should not get too carried away. Amec's rail-maintenance contracts are coming up for review and, although the company hopes to win market share, it may be forced to accept lower margins to beat its rivals.

What's more, Amec's success in services only serves to show how poorly it is still doing in the other parts of its business. Profits from capital projects were just pounds 5.3m in the half year (Amec did not provide comparative figures for last year) while housing and investment projects contributed just pounds 3m. Given that Amec turned over pounds 1.72bn - an increase of 14 per cent - in the period, there is still a lot to do.

That said, chief executive Peter Mason deserves credit for tackling loss- making divisions and shifting Amec's focus away from risky, low-margin projects. A few businesses, such as housebuilding, sit uncomfortably with the rest of the company. But in the case of an economic slowdown Amec should be relatively protected. On a forward earnings multiple of just nine, the shares are good value.