Amec Foster Wheeler

Amec made the major acquisition of US peer, Foster Wheeler in 2014. This effectively doubled Amec’s global scale, mainly in downstream oil services and onshore US. The timing of this deal was unfortunate, with the oil price collapsing upon completion. Amec’s equity value has been similarly weak with cash flow issues now seeing a cut in the dividend of 50% for 2016. Service companies are struggling on the back of producers continuing to announce deep cuts. It still appears that the acquisition was strategically pragmatic, improving both customer offering and barriers to entry. Our concerns over the balance sheet are somewhat protected by the dividend reduction which appears a prudent re-basing. I am concerned that an extended cycle, coupled with refinancing difficulties, will result in a rights issue. The market is pricing in this re-financing risk and that a bolstered balance sheet will, in time, allow the group's operations to participate in any recovery. Amec is a high quality operator suffering concerted attrition in several areas of operation. With some re-financing expected, progress may have to wait until we see either a supply cut from OPEC or a supply/demand rebalancing.