Should You Buy Weir Group Today?

LONDON -- Shares in Weir Group  (LSE: WEIR  ) have heavily retreated over recent days as fresh eurozone worries have whacked investor confidence, the firm's stock scaling back from the all-time peak of 2,474 pence hit last week.

However, I believe that the specialist pump and valve manufacturer could be set to experience negative earnings pressure in the near term, as difficulties in its key minerals and oil and gas markets could weigh on demand for Weir's products and services.

Rising aftermarket helps to drive revenues
Weir's full-year results release last month showed group revenues rise 11% to £5.5 billion, which in turn helped to drive 2012 pre-tax profit 12% higher to £443 million.

The company's commitment to margin expansion also helped to boost an improving bottom line. Weir saw groupwide margins improve by 110 basis points in 2012 to 19.1%, prompted by a healthy lift in aftermarket revenues -- these rose to 57% of total orders last year from 52% the year before. Indeed, lucrative after-sales activity should underpin the group's strength over the long term.

Falling orders paint worrying outlook
However, I believe that weakness in its key minerals and oil and gas divisions could put a pressure on the top line in the meantime. Group order input slipped 2% in 2012 to £2.4 billion, and 9% on a like-for-like basis, due to lower input from original equipment manufacturers in the second half of the year.

City analysts expect earnings per share to edge just 3% higher in 2013 to 154 pence, before picking up the pace to post 9% growth in 2014 to 168 pence.

Weir Group currently carries a P/E rating of 14.2 and 13 for 2013 and 2014 respectively, bang in line with the prospective earnings multiple of 14.2 for the entire industrial engineering sector.

Under-par dividends expected to last
The firm is committed to building a lucrative dividend policy, and last year's 38 pence payout was up 15.2% from 2011. And forecasters expect this to come in at 41.1 pence in 2013, an 8.2% increase. This is then expected to rise 9.5% next year to 45 pence.

These payments are also well protected with coverage of 3.7 times expected through to end-2014, well above the safety watermark of 2. However, these payments provide yields well below the 3.5% FTSE 100 average, with 2013 and 2014 yields predicted at 1.8% and 2%, respectively.

Given the threat of deteriorating end markets on Weir's earnings prospects, combined with the lack of a meaty dividend, I believe that the engineering play lacks a compelling investment case at the current time.

The canny guide for clever investors
So although Weir Group presents too much risk at current prices in my opinion, this newly updated special report featuring ace fund manager Neil Woodford highlights a host of other red-hot FTSE winners offering stunning value for money.

Woodford -- head of U.K. Equities at Invesco Perpetual -- has more than 30 years' experience in the industry, and boasts an exceptional track record when it comes to selecting stock market stars.

The report, compiled by The Motley Fool's crack team of analysts, is totally free and comes with no further obligation. Click here now to download your copy.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2335044, ~/Articles/ArticleHandler.aspx, 9/29/2016 2:52:24 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,206.49 -132.75 -0.72%
S&P 500 2,158.34 -13.03 -0.60%
NASD 5,288.85 -29.70 -0.56%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2016 12:11 PM
WEIR $1646.18 Up +75.18 +4.79%
Weir CAPS Rating: No stars