During the quarter we established a single new position in the Fund, Amec Foster Wheeler Plc (AMFW, Financial), which provides consulting, engineering and project management services to energy, power and process industries largely through reimbursable contracts. Engineering services typically represent only a small portion of the customer’s total project cost, but are critical to the success of the project. Slightly over 60% of Amec Foster Wheeler’s revenue is driven by the more cyclical end” markets, such as oil and gas and mining, but the remaining 40% should prove more stable in the current market environment. Amec and its management have a demonstrated history of compounding business value, maintaining strong returns, generating free cash flow and returning excess cash to shareholders. The company is in the process of integrating the recent transformational acquisition of Foster Wheeler, which added new capabilities in downstream oil and gas and further diversified the company’s geographic exposure.
Our ability to purchase shares of Amec Foster Wheeler at a significant discount to our estimate of its business value results from a share price that tends to respond to movements in oil prices to a degree that overstates its business sensitivity to the price of oil. While it is not surprising that the stock has declined, we believe the less cyclical parts of the business will enable it to weather this storm better than most of its peers, who rely heavily upon upstream oil and gas spending. Meanwhile, no credit appears to be bestowed upon the newly combined company for the considerable strategic benefits of combining Amec with Foster Wheeler. The two companies had a high degree of complementarity in terms of their respective upstream and downstream exposures, geographic exposures and customer exposures. Lastly, the company is progressing rapidly on its merger integration which will yield considerable cost synergies and improved operating performance. Amec was a 1.5% position in the Fund as of July 31, 2015.
From Third Avenue Management (Trades, Portfolio) International Value Fund's Q3 2015 shareholder letter.
