AMEC London Engineering Firm A Strong Buy Before Earnings Release

| About: Amec Foster (AMCBF)

Having spent the bulk of my career in Oil and Gas engineering firms I lament the fact that I was never part of (OTC:AMCBF). The high caliber of management and engineering staff at AMEC made it a highly desirable company to work for. The company is large enough to tackle the big project with having room to grow at a 5.1 billion USD market cap.

About AMEC.

AMEC works in Natural Resources, Power & Process, and Environment & Infrastructure divisions. The Natural Resources division is engaged in the engineering, project management and asset support. The Power & Process provides services asset support services in the clean energy market. While Environment & Infrastructure is an environmental and engineering consulting organization.

The company has made two major acquisitions in the past few years. First was the acquisition of Unidel in May 2012 followed shortly by Serco Group plc's nuclear Technical Services in June of 2012.

Now it has announced on January 13, 2014 AMCBF has agreed to purchase Foster Wheeler (FWLT) for 1.9 billion pounds or 3.13 billion USD.

The latest acquisition will allow AMEC to expand into the growing markets of Latin America and the Middle East where Foster Wheeler has a large footprint. According to AMEC management the merged entity would more than double the revenue in these areas (Latin America and the Middle East). Foster Wheeler (a Swiss based firm) has expertise in LNG and power generation equipment in addition to geographic diversity with revenues in Latin America and the Middle East.

Firms in this sector average an 8.1 multiple on revenues for enterprise value while the Foster Wheeler bid is at almost a 10x multiple. On the surface it would seem that AMEC was overpaying on this acquisition. One must take into account the geographic and skill set diversity of the combined company. Foster Wheeler also comes with a robust and profitable power equipment business which sets it apart from its peers.

Earnings for 2013 will be released February 13, 2014. While the merger is not complete I feel the existing earnings will beat estimated and this coupled with the acquisition leads me to want to buy stock today. The stock is up 2.42% to 1,099 as of this writing. This is far below the 52 week high of 1,210 set November 5th of 2013.

In Junius' article on AMEC competitor Petrofac (OTCPK:POFCF) January 26, 2014 it was noted that:

"European oil services companies have over the past year traded at a significant discount to their North American peers because of their limited exposure to shale gas opportunities, lowered profit guidance and lower valuation multiples on European equities."

The acquisition of Foster Wheeler will allow AMEC to break over that discount in valuation caused by AMEC having a European revenue concentration. This will be done with the expanded geographic and segment presence. AMEC is planning to have American Depository Shares after the acquisition and is projecting to save 75 million USD on overhead costs.

In closing I recommend buying AMEC before earnings are released on the 13th February 2014 as the combination of the earnings release and the realization of synergistic effects of this merger should be good for a short term run up in the share price.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: AMEC.L is a London based stock ticker