A Double Play on Commodity Rebound

Focus: GLOBAL

Peter Shearlock Image Peter Shearlock Editor, Growth Company Investor

UK pumps-and-valves specialist Weir is a discounted play on the next extraction boom, writes Peter Shearlock in The IRS Report.

Among suppliers to the oil and mining industries, there are not many that straddle both areas. One that does is The Weir Group (LSE: WEIR), which is essentially a pumps and valves business. Its shares lost two-thirds of their value over the course of last autumn when the price of leading commodities was in free fall. There has been some recovery since but, as one of Britain's best-run companies, Weir remains cheaply rated.

Weir amounts to a play on both oil and base metals. More than half of last year's £1.44 billion of revenues came from its minerals division, whose biggest customer segment is the mining industry. But sales to the oil sands industry are included in the same division, as are Weir's flue gas desulphurization businesses. A separate oil and gas division accounts for 21% of total sales. The remainder comes from the power and industrial division, selling specialist pumps to power generators, nuclear included.

Weir turned in a blistering performance in 2008 with profits before tax up by more than a half to £176 million and earnings up just slightly less to 59.3 pence a share. It started this year with what was described as a “significantly stronger” order book than a year earlier. In March it warned that it was beginning to see a downturn in activity in the minerals division.