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Friday tips round-up: LSE, Amec FosterWheeler

LONDON (ShareCast) - The decision by Borse Dubai to get out of its stake in the London Stock Exchange (Other OTC: LDNXF - news) can be put down to profit-taking. The LSE's shares rose 61% since 2007, easily outpacing the 15% rise seen in the FTSE All-Share (LSE: SHRE.L - news) over that same time frame. Nevertheless, it is always disconcerting to see a major shareholder sell out, especially when it means a potential acquirer is exiting the share register. With the stock changing hands now at 19 times earnings - which means they are not exactly a bargain - shareholders must ask themselves if the company can continue on its current trajectory. The company has diversified its business model through a string of acquisitions, lowering its exposure to UK equities as it joined the trends towards passive investing and centralised clearing. More acquisitions can be expected as the sale of Russell investment management lowers the company's gearing below its target of twice earnings before interest, tax, depreciation and amortisation.

The main risk is that the outfit is still deemed by some to be no more than a levered play on the state of capital markets activity, but that is wide of the mark. As analysts at RBC (Other OTC: RBCI - news) points out, this year only 14% of revenues will come from that source, writes the Financial Times' Lex column.

The dividend yield afforded by the combined Amec Foster Wheeler (Other OTC: AMCBF - news) , at 4.7%, has helped to prop up the shares. However, margins at its upstream activities are still under pressure and the benefits of its recent merger are still unclear. The fact that the firm uses a unique metric for revenues does not help matters, making understanding its financial results a nightmare. In pro-forma terms in 2014 revenues at the combined company slipped to £5.8bn from £6.1bn.

This year they should come in at about that same level, but margins at its upstream activities are under pressure. Positive exchange rate effects and cost savings should help keep the firm's earnings per share on an even keel. Even so, selling now on about 12 times earnings the shares do not look like they are worth buying says The Times's Tempus.