Fool's Eye View

[ November 27, 2000 ]

Comment: AEA Technology

By Rob Davies (TMFEssex)

Carburton Street, London -- Among all the high-profile privatisations of the last administration were some smaller fish. One of these was AEA Technology (LSE: AAT). Floated at 280p in 1996 it soared as high as 1000p before suffering some sharp falls and now trades at 338p. The company is rather a strange animal, essentially a bunch of boffins with lots of answers looking for questions. It used to be a kind of in-house lab for the Government, but applying those skills in the world of commerce has been more difficult, as today's interim results demonstrate.

Turnover was hardly changed at £171.5m (£170.4m) but operating profit collapsed to £1.6m from £11.8m, profit before tax dropped from £6.1m to £1.9m and earnings per share fell to 2.4p from 7.0p. The reasons were outlined in a trading statement last month and relate to delays in software contracts and the postponement of a battery contract for the MOD. However, the company seems to have recognised its failings and has taken steps to restructure the business and make it more commercial.

The company will now focus on two key areas, Rail and Environment, and the other businesses will be sold off or restructured. Engineering Software will be partially sold and the remaining activities enhanced through partnerships. Future Technologies will be split in two, one part to become an IPR (intellectual property rights) business, which may be floated at some stage, while the rump will be absorbed into the rest of the group. Nuclear Technology, which was the core of the business, will be put up for sale again, but I doubt managers will get knocked over in the rush.

A divisional analysis of the company is interesting.

Division              Revenue     Operating Profits £m

Railway                21.5             2.7
Environment            26.0             1.4
Engineering Software   23.2            (1.9)
Future Technologies    31.7            (5.0)
Nuclear Technology     69.5             4.3

The two businesses it is keeping are the smallest, and the most profitable, but changing the business so fundamentally will be a major challenge for the company. However, on a price to earnings ratio of 12, the market clearly isn't expecting very much anyway.

Where Next?

• The AEA discussion board
• The AEA web site