Weir Group shares soared 8.3% yesterday to regain some of the ground they lost during the summer after the company upgraded its profit forecast thanks in part to a rising dollar.
Weir Group shares soared 8.3% yesterday to regain some of the ground they lost during the summer after the company upgraded its profit forecast thanks in part to a rising dollar.
Scotland's largest engineering company upgraded its pre-tax profit expectations to £170m, some 3% up from its prediction of £164.5m in August prompting a 40.5p rise in its shares to close at 529p.
The Glasgow-based group, which makes pumps and valves for moving minerals, oil and seawater had previously seen its shares plummet 47% in the past five weeks in line with those of the commodity companies with whom it does much of its business.
The company said that during the third quarter of its financial year, ending September 26, it "continued to perform strongly", reporting growth in revenues and profit thanks to demand from the mining, oil and gas and power sectors and the impact of recent acquisitions.
Analysts said that its minerals business appeared to be trading around 10% ahead of expectations while other parts of the business were performing as anticipated.
Weir added that it had benefited during the quarter from the rise of the dollar against the pound. That trend has continued in recent days with sterling yesterday hitting a two-and-three-quarter year low against the greenback, trading at $1.7174 before rising to $1.7377 later in the day.
This benefits Weir by inflating the value of profits made in US dollars when they are converted into pounds.
The news prompted an upgrade from analyst Numis from "add" to "buy" with a price target of 660p, in the belief that recent selling of the stock had been "overdone".
Numis analyst Nick Webster said: "Strong order input continues and in the event of a slowdown we believe Weir is well positioned to benefit from its growing installed base, driving a strong aftermarket profits stream."
Weir's net debt fell over the three months to £261.7m thanks to the sales of several businesses and cashflow althought foreign currencies had an adverse impact.
The company said it has arranged a total of £625m of revolving credit facilities expiring in 2011 which will give it "further future headroom" to expand.
Weir disposed of the Weir Materials & Founderies operation in Manchester for around £10m last week, barely a month after selling its Canadian distribution business for £13.2m. It has also recently bought a 75% stake in Azerbaijan-based Standard Oilfield Services, for £8m.
In 2007, Weir sold off its Glasgow-based pumps business for £45.5m. This was part of a strategy driven by chief executvie Mark Selway to focus on higher margin businesses.
In the first six months of its financial year pre-tax profits rose 75% to £75.1m compared with the same period last year. Sales rose 46%, much of the increase due to a rapidly expanding minerals business.
Weir's shares reached a peak of 969p in June, having tripled in five years. This left it on the cusp of admission to the FTSE-100 until worries about demand for commodities, particularly from Asia, attacked sentiment towards the sector.
