Amec bids expected to come in at £360m

The City is anticipating a revival in Amec's fortunes, with margins jumping to 8% by 2010. The rub is that this is dependent on the successful sell-off of the entire £1.3bn-a-year turnover Built Environment division.

No bids are yet on the table, but the division could make £360m according to calculations by Adrian Cattley, analyst with stockbroker Citigroup.

The four Built Environment businesses are now seen by Amec as non-core.

Amec's £66m spend on PPP equity stakes is estimated to have risen to a value of £211m, which represents the lion's share of the division's sale value.

Putting a value on the rest of the contents is less simple.

In UK civils, where all the problems have been, Cattley suggests £100m as the top-end value and nil as the low. Rather than work on a figure of £50m, the mid-point sale value, caution takes him back to a lower figure of £30m because of weak performance.

The rest of the construction operations should add £120m to the sale value: M&E, fit-out and hard FM related to building and asset maintenance.

One issue still to resolve is the size of Amec's remaining construction liabilities, which are "the most challenging to sensibly quantify", said Cattley.

Amec still has £221m subject to litigation, though payments to settle these claims are likely to be lower. Thus far, Amec has settled for 40p in the pound in claims resolved.

In December 2006, Amec took a £70m provision on top of the £20m already taken to cover these legal actions. Cattley assumes a final settlement figure of £100m, some £10m ahead of the £90m hit already taken.

"One of the clear weaknesses of Amec over the past five years has been the inability of the business to turn reported profits into cash," said the report. "Working capital has, on average, seen outflows. For a business that should see inflows given the structure of the construction contracts, this is disappointing.

"We view one of the key weaknesses at Amec as being a lack of control. This has manifested itself in letting loss-making contracts, limited control on overheads and limited cash discipline on contracts when let. Winning a contract was more important than being paid in a timely manner."

Amec said: "We don't comment on analysts' reports."