Weir Group chief leads fight against takeover rumours

By PETER RANSCOMBE
Published on 29/07/2012 00:00

WEIR Group chief executive Keith Cochrane will use this week’s interim results to talk up prospects at the engineering firm amid talk of a takeover bid from one of its overseas rivals.

Analysts warned that, on its current valuation, the FTSE 100 stock is susceptible to offers from potential buyers, with German engineering giant Siemens and American conglomerate General Electric (GE) each touted as possible suitors.

Weir Group’s shares have veered wildly in recent months, after hitting a 52-week low of 1,375p in October before rising to a peak of 2,236p in late February.

Over the past year, Weir’s shares have lost 23 per cent of their value, compared with only a 4 per cent dip for the Footsie as a whole.

The stock, which joined the top-flight share index in September 2010 and often follows the highs and lows of its clients in the mining sector, closed at 1,659p on Friday, valuing the company at about £3.4 billion.

Andrew Carter, an analyst at RBC Capital Markets, said: “At current share price levels, we believe Weir could be considered vulnerable to a takeover bid.

“We note reports that mentioned Siemens as a 
potential acquirer.

“GE has a stated strategy of building a leading drilling and surface equipment franchise and has also acquired mining equipment businesses recently.”

Glasgow-based Weir has long been the subject of takeover speculation, with Swiss giant ABB – which owns a stake in Edinburgh-based marine energy developer Aquamarine and has oil and gas engineering 
operations in Aberdeen – cited as a possible buyer.

Looking ahead to Tuesday’s figures, Carter added: “Revenue and margin trends in the oil and gas 
division are likely to be the main focus of attention.

“The division’s margin will be closely watched. Despite management having stated confidence in margins, this remains an area of concern for investors.”

Thomas Rands, an analyst at Peel Hunt, noted: “The recent capital markets day painted a very positive long-term picture for the minerals division.

“But, with no update 
given on oil and gas since the interim management statement on 9 May, all eyes will be on how weak volumes and pricing were in the second quarter and what the outlook is for the second half of the year.

“Those hoping for visibility into 2013 could well be disappointed.”

Analysts at Jefferies upgraded their recommendation on Weir from “hold” to “buy” last month, following the capital markets day.

Andrew Gibson, head of research at Galvan, noted that “a lot of bad news is priced in at the moment” to Weir’s share price.

Gibson added: “The under-performance from Weir Group’s oil and gas division earlier in the year was 
taken literally by the markets as a signal to sell the stock, with the 25 per cent profits gain for the previous year also ignored.

“But the reiteration of full-year guidance and 
Jefferies’ positive appraisal have caught the markets on the hop and, in the view of the Galvan Research team, merits a ‘buy’ rating for Weir at current levels.”

The company was founded in 1871 by brothers George and James Weir – descendants of national bard Robert Burns – and employs 14,000 people in more than 70 countries.