Weir, which makes pumps and valves for the oil and mining industries, is one of the many businesses whose shares have suffered as the crude price plunges.
But despite Brent falling another 1.15% to below $63, the company is one of the few risers in a falling market. Its shares have added 14p to £17.09, supported by an upgrade from Canaccord Genuity. The broker said:
Against a backdrop of considerable uncertainty and a depressed oil price, we are aiming for a broad direction rather than trying to over finesse and adjust for well completion differentials and frac stage counts. On this simple basis, we are assuming that 70% of Weir’s Oil & Gas division is North American shale related and we have lowered this number by 16% with a negative drop through of 40%. We have made minor changes to our Minerals forecast and have included Trio. Our 2014 forecast is unchanged but 2015 pretax profit is cut by 13.3% to £392.8m, earnings per share of 132.7p and 2016 falls by 13.8% to £419.8m with earnings of 142.0p.
The safe call would to be to maintain our Hold recommendation and cover the inevitable volatility and uncertainty of the next few months. However, the valuation looks compelling, we estimate operating margins in 2015 will be 18%, and the company is throwing off cash. On a six- to 12-month view, we believe the risk/ reward profile is heavily skewed to reward and move our recommendation to buy [from hold].
