Weir is among the big risers in a relatively flat market, on hopes for an improving outlook for the oil and gas sector, not least in fracking and shale gas exploration.
The engineering group has jumped 88p or more than 4% to £22.25, boosted by a positive note from analysts at Redburn, recent news of a rise in US rig numbers and vague hopes of consolidation in the sector. Amec has announced a $3.2bn bid for US competitor Foster Wheeler, and Weir itself has been tipped as a possible target for the likes of GE.
In its hefty 128 page report, Redburn put a buy rating on the company's shares and said:
Weir has been buffeted by the collapse of two super-cycles. Mining capital expenditure is a much-told tale but we argue Weir Minerals' unique assets mean it is not directly correlated to the mining cycle and can achieve modest growth. Oil and gas is finally improving after the boom and bust. This combination of trends means free cash flow is set to hit a sweet spot and a rerating is in the offing.
Weir's valuation compared to the rest of the UK capital goods sector is such that any sign of earnings stability will be met by a rerating. In addition, Weir's returns on capital should increase in 2014 and 2015, reflecting optimum margin mix in the minerals division, lower restructuring costs, and improved working capital dynamics. The latter will be responsible for materially better free cash flow generation ensuring Weir shares could be worth £26 in one year's time.
