WEIR Group's stock market worth surged by about £170 million yesterday after it reassured the City it was on course to hike its underlying annual pre-tax profits to between £440m and £450m, from £396m in 2011, amid tough market conditions.
The Glasgow-based engineering company is confident of achieving a double-digit-percentage hike in profits. This is despite a year-on-year tumble in orders for pumps and other equipment from the shale oil and gas sector in North America, and challenges in its mining marketplace, including major industrial action in this sector in South Africa.
Weir's shares ended 80p, or 4.6%, higher on the day at 1831p, with this rise pushing up the FTSE-100 company's market capitalisation from £3.72 billion to £3.89bn.
The shares traded above £22 in the first quarter of 2012, and fell below 1400p during the summer.
Weir said its revenue and profit growth had moderated in the third quarter as a result of a lower opening order book and reduced activity levels at its SPM and Mesa businesses, which serve the shale oil and gas sector.
However, it emphasised that third-quarter revenue and profits were ahead of the same period of 2011, "benefiting from the impact of prior-year acquisitions which continue to perform satisfactorily".
Touching on the North American shale oil and gas sector, Weir chief executive Keith Cochrane said: "We were pretty pleased with our performance in Q3 given that backdrop because the rig count has come off a bit during the course of Q3."
He said it was encouraging Weir had been able to maintain new order input from the upstream oil and gas sector in the third quarter at a "similar pace" to that in the second quarter.
However, Weir's like-for-like upstream order input for the first nine months of 2012 was down 45% on the same period of last year.
The City was encouraged that, in spite of the reduced market activity, Weir was able to report that profit margins in its oil and gas division in the third quarter were in line with its expectations.
Analysts at Bank of America Merrill Lynch, Weir's joint broker, said in a research note: "Weir importantly maintained the 25% oil and gas margin guidance."
Weir had, when it announced first-half results on July 31, cited an expectation that its 2012 profits before tax, goodwill amortisation, and exceptional items would be between £440m and £460m. Mr Cochrane noted, however, that the City's consensus forecast had fallen to about £442m before Weir's trading update yesterday.
He said: "The market had got itself to the lower end of consensus. The fact we are talking £440m to £450m, and in line with consensus, didn't change anything, particularly given some of the broader market dynamic we are seeing."
The Bank of America Merrill Lynch analysts, comparing Weir with others operating in the mining and shale oil and gas sectors, said of the firm's £440m to £450m profit guidance yesterday: "We think this is positive given commentary from minerals and SPM peers."
Mr Cochrane noted Weir's minerals division had also faced de-stocking by some customers in the iron-ore and coal sectors in Australia and Brazil.
However, asked about the impact of unrest in South Africa's mining industry, Mr Cochrane replied: "A number of the mines are back up and working again."
While revealing there had been a period during one of the strikes in which Weir "couldn't get finished goods out of our plant", he added: "That is now resolved. We are now back shipping product throughout Africa."
Weir employs about 14,000 people worldwide, about 600 of whom are based in Scotland. Weir, as well as having its group head office in Glasgow, has its power and industrial division headquarters at East Kilbride, a power services business at Alloa in Clackmannanshire, and an oil and gas services unit in Aberdeen.
Weir's overall order input in the third quarter was down 8% on the same period last year. It was up 2% in the minerals division, 16% higher in the power and industrial division, and down 28% overall in oil and gas.