Weir shares slide on profit taking as investors turn cautious ahead central bank meetings

Weir, which makes pumps and valves for the mining and oil industries, has suffered a spate of profit taking after issuing a trading update in line with expectations.

The company said it had performed well during the third quarter, so it now expected full year profits to be higher than previously expected. Orders during the first nine months were up 32%, with original equipment orders up 44% and aftermarket sales 23% higher.

But its shares have fallen 44p to £15.14, with some analysts suggesting the good news was in the price. Steve Medlicott at Altium Securities said:

We had already taken the view that second half trading would not weaken much over the first half but we had erred on the side of caution. Hence, we increase our 2010 estimates by £10m to £290m. The strength of recent order intake at [subsidiary] SPM is encouraging for 2011 and as a result our upgrade to pretax profit for that period is £30m or 10%. We have also increased our price target, now based on the 2011 estimates, by 12% to 1670p.

Nevertheless the shares have been very strong since entering in the Footsie and we have moved our
recommendation to hold as the recent rise has already anticipated much of this good news.

FTSE 100

The UK banking reporting season also gets underway tomorrow, with Lloyds Banking Group, up 1.27p at 70.21p. Joshua Raymond, market strategist at City Index, said:

[Equity] gains were kept on a leash with investors eyeing a potential volatile week of economic data that sees the Federal Reserve announce an expected second round of quantitative easing on Wednesday, followed by decisions from the Bank of Japan, Bank of England and ECB, while the week finishes with the US nonfarm payrolls.

As indices touched gains of around 1%, we started to see investors start to take profits off the table, preserving their gains and sitting on the sidelines awaiting the decision from the Federal Reserve. This could certainly be a feature of trading for the early stages of this week until Wednesday.

The better than expected UK manufacturing data, along with UK GDP growth of 0.8% in the third quarter lowers the probability that the Bank of England will follow other central banks and inject more stimulus into the markets, supplementing sterling gains but dashing somewhat small hopes for equity investors.

Overall the market has come off its best levels, with better than expected manufacturing news lifting the pound and dampening expectations of further UK quantitative easing. The is now up 12.53 points at 5687.69, with investors cautious ahead of a big week of economic and corporate news, not to mention the US mid term elections. The Federal Reserve is expected to unveil further QE on Wednesday, and there are other central bank meetings including the Bank of England and ECB. On top of all that, the US non-farm payroll numbers are due on Friday.