Friday tips round-up: Amec, Aberdeen, Pennon

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LONDON (ShareCast) - There was confusion over Aberdeen Asset Management (Other OTC: ABDNF - news) 's apparent return to the acquisition trail yesterday morning. The company last bought a business, the asset management side of Royal Bank of Scotland (LSE: RBS.L - news) , in 2010, and the chief executive Martin Gilbert was quoted here as recently as September as saying he preferred to use surplus cash to boost the dividend and buy back shares. Almost 130m pounds in total takes a large chunk out of the 300m pounds in the bank at the end of last year, which the market had expected to go back to investors.

Except that Artio comes with 136m dollars in cash. The net figure for both, a little more than 40m pounds, is less than Aberdeen's free cash-flow since the start of the year. These are small, infill purchases, not a return to the deal trail. Aberdeen's strong rise since last spring — witness the graph — may count against any further outperformance over the sector as a whole. But the future for fund management looks to be with a handful of strong players, and Aberdeen will be one of them, The Times's Tempus writes.

Energy and mining services group AMEC (Other OTC: AMCBF - news) produced a good set of full-year results yesterday, boosted by an increase in activity in the North Sea. However, the shares fell as investors fretted about prospects for 2013 and the company's margins, which fell to 8% in 2012 from 9.2% in 2011. Ian McHoul, AMEC's chief financial officer, said the lower margins were caused by the company taking on more procurement activity for some of its largest customers. When this effect was stripped out, margins were down by just 60 basis points instead of the headline fall of 120 basis points, Mr McHoul said. As well, AMEC's failure to announce another repurchase programme probably contributed to yesterday's sell-off.

The company has also been hurt by weak sentiment surrounding mining and the unconventional energy market. This is particularly true in terms of the oil sands market, which is expected to be very soft. The shares are trading on a December 2013 earnings multiple of 12.3, falling to 11 and yielding a prospective 3.4%, rising to 3.7%. The shares are now a hold, down from buy, Questor says.

The trading statement from Pennon yesterday confirmed that South West Water was still trading strongly and should outperform the targets set for the current regulatory round, which ends in March 2015. As indeed it should. But while the prices of those recycled materials have seen some recovery from the lows of October and November (Xetra: A0Z24E - news) , they are still running at below the levels seen in the summer.

Pennon was cautious about any further recovery, so earnings in the next financial year starting in April will be broadly similar to the current year. This suggests something in the 40m pound area for both years; one analyst was looking for more than £70m for 2014-15, but it looks too early for a proper view. Some analysts had been pencilling in a much sharper recovery next year, so estimates were duly cut. The fall in the price means the yield on the shares, traditionally the lowest in the sector, is now approaching the others, 4.4 per cent for the current year. This gives some support, but there could be more shocks to come. A mere "hold", then, Tempus concludes by saying.

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