Amec plc Is A Solid Company Built On Growth (LON:AMEC, Mactec, Urenco, BP, Clean Energy, Energy Investments, Earth & Environmental)

Here's a stock that should appeal to the pernickety investor, London-based engineering group Amec (LON:AMEC). The company is an important player in both the nonrenewable (oil & gas) and renewable (nuclear & other clean energies) sectors; It provides services ranging from oil rig maintenance to water supply management of municipal acquifers and conservation strategies to nuclear power plant decommissioning and other safety services.

What makes the company solid is the fact that the services it provides are so diverse. It operates in oil and gas but also the booming clean energy industry. There's also the minerals & metals and environment & infrastructure divisions. The group provides consulting, engineering and construction/project management primarily as designer-developer of strategic assets (also maintenance and decomissioning, in 2010 $2.45b of its $5.0b sales originated from the engineering design process). In the North Sea, it fabricates and designs oil rig platforms. It also services oil wells in Kuwait and aids oil safety efforts in the Gulf of Mexico where it designs and delivers components for the Marine Well Containment Company (MWCC). In Chile AMEC has a contract with Compañía Minera del Pacífico (EPCM) for work at the Cerro Negro Norte iron ore project.
After the nuclear meltdown in Japan, nuclear safety is also becoming a major issue. That's good for Amec because the company is experienced at nuclear cleanup and decommissioning problematic reactors. Amec's customers are diverse meaning the company appeals to a broad group of clients. Key clients include the US Navy, nuclear company URENCO, and oil and gas companies British Petroleum and ConocoPhillips.

Important points to consider
- Amec added 3500 new employees in 2011 bringing the total to just over 27,000.
- Amec runs AMEC academy which helps new employees develop skills.
- Amec added a number of new customers in 2011 among them GDF Suez (Cygnus gas field) and nuclear power company Urenco.
- World primary energy demand is forecast to increase by 40% between 2009 and 2035 (12.15M tones of oil equivalent --> 16.950Mtoe).
- According to the world's biggest company ExxonMobil (2012 Global 2000 list released in April) global population will increase by 25% between 2010 and 2040 with non-OECD nations contributing 90% of energy demand growth.
- The Clean Energy market which is integral to Amec's business mix, was the recipient of $260 billion in global investment in 2011 which is a record high for that market.

Key Financial Metrics to consider

In 2011 earnings per share (EPS) up +13% to 70.5 pence, grew faster than revenue/turnover (+11%). Amec also pays dividends ! 30.5 pence/share in 2011 which is +15% vs 2010 (26.5 pence). While we're talking about dividends keep this in mind, AMEC's dividends have gone up for four consecutive years. Dividends were 13.4p in 2007, 15.4p in 2008, 17.7p in 2009 and 26.5p in 2010. The company's operating cash flow was up +22% in 2011 to £267 million. Total pretax profit is up nearly 50% in just two years even though during that time revenue increased by only 28.4%.

In my opinion AMEC's products and services are invaluable to the energy industry. Though about 80% of revenue comes from Europe and North America, AMEC has offices in 40 countries worldwide. The company is also not afraid of making big acquisitions; Amec has a major growth strategy which is refers to as Vision 2015. It aims to make the company more multinational through acquisitions while also enhancing its capabilities in key sectors. Consistent with that goal, in 2011 Amec acquired Australian oil and gas consultancy group Zektingroup for AUS$48 million (gives it a presence on the East Coast of Australia, Zekting's workforce = 200) followed by Georgia-based Mactec on May 17, 2011 for US$280 million all in cash. The deal for Mactec was ingenious, although Mactec is already involved in the same kind of business its client base was a lot different (was more commercial and industrial). In its last year of being independent Mactec made $411M in revenue (compared to $5.0B for Amec in 2010).

Mactec
The Mactec deal added 2,600 employees to Amec and boosted its North American workforce up to about 14,000 (half of company total, NA operations account for roughly half of Amec's revenue). Mactec then became part of AMEC's Earth & Environmental division (environmental, water resources, infrastructure unit). Mactec gives Amec more business in the Western USA and Canada.

Other Strong Investments in the engineering industry (nyse: MTZ)
MasTec, Inc ! If you live in North America you probably make use MasTec built infrastructure on a regular basis. The company installs and maintains energy infrastructure most notaby that which is used in electrical utility transmission. For the first three months of 2012 calendar year MacTec revenue is up +25.87% quarter on quarter to $778.48 million. However, the bottom line didn't improve (in the quarter net income down -33% to $14M) because the cost of revenue was up +29.5% ($583.91m --> $684.66m). That may be an aberration owing to wildly fluctuating metal prices and other imput costs; The cost of revenue in the March 2012 quarter was at its lowest level in three quarters.

Biofuels Getting Heavy Investment From The US Government and Petrobras

  The US committed over half a billion dollars of taxpayer money ($510 million to be exact) over the next 3 years to advancing biofuels into a more usable form available for use by commercial and military aircraft, bringing private and public investment to just over US$ 1 billion. (oilprice.com) Obama calls them "next generation biofuels" because the plan is that they will be cheaper (due to mass production) and more widely available (the algae could be used more effectively). The US government is confident that the investment will speed up biofuel development however that ignores over 50 years of scientific research that yielded few improvements. In Brazil, for example where 90% of new vehicles are being made to run on a combination of bio-fuel and fossil fuel, the country is facing record energy deficits, for example in 2010 imports of fuel skyrocketed as land use demanded during algal biofuel production simply overwhelmed the country; prices skyrocketed also with the price of biofuel rising 85% over the year. Even with the high cost impediments (in the range of $65-$100 per gallon), the US secretary of agriculture countered with "For every dollar increase in the cost of a barrel of oil, it costs the Navy $30 million". Petrobras aims at ending Brazil's supply shortage, it is investing $1.9B in the next four years to raise production of ethanol (will invest another $600M in biodiesel and $1.6B in other biofuel operations); $328M is going to Brazil's biggest sugar ethanol mill, the Boa Vista (49% Petrobras share was acquired in June 2010 for $240M; the other 51% is owned by Sao Martinho) to quadruple production (ethanol production has a 5-10% profit margin). (Reuters: Petrobras, Sao Martinho to expand ethanol output) (traditionally, algae makes up about 60% of biofuel production with the rest coming from other bio sources).

Traditionally, the American bioethanol industry (works to prevent other options from being considered) and the lack of progress in determining which biofuel feedstock is the most economically viable, have been major impediments to production increases. Strong opposition from the petroleum industry could also become a problem when biofuels gain wider acceptance, for now though oil companies have shown interest in gaining market share in the biofuel industry; in 2010 for example Royal Dutch Shell began a $21 billion milling and fuel distribution joint venture with Brazilian ethanol company, Cosan. The partnership has so far been extremely profitable for Cosan, by August Cosan reported a record $1.44B quarterly profit, net revenue was up 29.75%.

Over the last 45-55 years the US government has only spent about $2.5 billion on biofuel research with less than appealing results. While biofuels are a great option long term, for the short term it might not be considering the cost to produce (per kWh renewables in general are 23c, natural gas is 9c and coal (popular in China) is 4c) and the fact that in both the United States and Europe, both nations and people have increasingly tight budgets.
Additionally, there are the environmental impacts associated with algal biofuel production: Fertilizer used to grow algae at the rates needed comes largely from petroleum feedstocks. (Scientific American) Algae uses sunlight and water to convert CO2 into fuel-usable material; it is much more economical to use C02 coming from petroleum sources. Also, a high energy centrifuge is utilized to separate the algae from the surrounding water in order to extract the fuel source.

Algae is the third and latest generation biofuel and so it has an integral role to play in the future of biofuels. It earned that distinction by being environmentally friendly (biodegradable) and more effective than the alternatives (30X more energy per acre as compared to Soybeans). Third generation was preceded by second generation biofuels (attractiveness comes from its use of non food material such as wheat stalks and wood) and first generation biofuels (ethanol and biodiesel). The ethanol used in first generation biofuels is produced through fermentation of sugars extracted from plants (sugar extracting methods can be applied to almost any kind starch-based material). Drawback of first generation's bioethanol: gas powered vehicles can only run on a mixture of at most 15% bioethanol. A biofuel is by definition renewable material since the matter within it must be at least 80% renewable.

There are also other consequences to increased reliance on biofuels/ethanol : In January 2011 the United Nations director of Food and Agriculture called the US strategy of using foods like corn to make bio energy, a detriment to world food prices and supply. In fact only four countries in South America are able to increase biofuel production without endangering food security. In Brazil 3% of land is used to produce the sugar cane used in biofuels.

Currently, algal biofuel production is at least 40X that of soybean biofuel production (over 2000 gallons compared to about 50 gallons). (dotyenergy.com) The "Energy Independence and Security Act of 2007" set a "mandatory Renewable Fuel Standard," requiring fuel producers to use at least 36 billion gallons of biofuel in 2022.