US Edition Weir Group
£20.72 -14p
Questor says BUY
In the six months to July 1, revues rose 33pc to £1.03bn, with pre-tax profits up 24pc to £178m. Management is confident in the outlook that it has raised the interim dividend by 20pc to 7.2p. This will be paid on November 4.
The most important figures, however, relate to order input. Orders for original equipment rose 67pc, with aftermarket input up 25pc.
The company's installed base of equipment is growing rapidly and this gives it significant opportunity in the aftermarket – for the sales of replacement parts and service contracts. This business model works – as demonstrated by turbine maker Rolls-Royce.
The results were ahead of expectations in all areas and this means that Weir now expects pre-tax profit for the full year will be ahead of its previous expectations. This should result in analysts upgrading their forecasts in the next few days.
The minerals unit made 54pc of operating profit in the first half, with oil and gas 44pc and power and industrial 2pc. Weir plans to invest a further $75m (£46m) in its upstream oil and gas capacity.
The long-term outlook for the business remains positive, driven by emerging markets and growing demand for energy and metals.
Weir Minerals is the global leader in slurry handling equipment and the associated aftermarket for abrasive high-wear applications used in mining, oil sands and flue gas desulphurisation markets. Order input rose 34pc in the period, with revenues at the unit rising by 28pc.
Weir Oil & Gas designs and manufactures high-pressure well service pumps and flow control equipment focused on unconventional oil and gas markets. The increase in exploitation of shale gas reserves has provided a substantial opportunity for the division. Order input in the first half rose 82pc, with revenues up 49pc.
The shares are trading on a December 2011 earnings multiple of 17, falling to 15.1 nest year. The prospective yield is 1.5pc.
The shares are up 88pc since they were recommended on June 17 last year at £11.02, compared with a FTSE 100 up 10pc. Despite the high rating – which should fall as upgrades work their way through the system – the shares remain a buy.