Weir wobble on the cards as fracking demand slows in US

WEIR Group will come under intense scrutiny next week, with the prospect of a significant share price adjustment unless it can allay concerns about growth prospects in two key markets.

The Glasgow-based company will issue a trading update on Wednesday, and chief executive Keith Cochrane can expect a grilling on the outlook for sales into the mining and gas exploration markets. Both sectors have shown signs of coming off the boil, leaving Weir shares trading near seven-month lows.

However, Oliver Wynne-James of Panmure said yesterday that further declines looked likely if, as he expects, Weir further eases back on its growth expectations. Other analysts agreed, citing the large amount of Weir stock being snapped up by short-sellers betting on further share price declines.

“It just shows there are enough people of the very firm opinion that the shares have further to go,” Wynne-James said, noting that nearly 20 per cent of the group’s free float is out on loan.

The Panmure analyst – who earlier this week warned investors that Weir “may have to fight fires on two fronts” – believes the shares could fall by another 100p to 200p before investors have fully discounted the uncertainty over the mining and gas exploration sectors. Weir Group’s shares had been on a strong run since early 2010 but have come under pressure recently amid speculation that low gas prices and high inventories will dent demand in the US for the pumps Weir makes for the fracking method of gas extraction. Weir sells much of this equipment through its Seaboard subsidiary in Texas.

Earlier this week, Cochrane told a major energy conference in Houston that he expected the hydraulic fracturing market outside the US to double within the next three years. The Scottish group is reckoned to be the world’s largest provider of fracking equipment.

However, this growth is coming from a low base, with North America currently accounting for some 90 per cent of the global market. Halliburton and Schlumberger, the world’s largest users of fracking equipment, both said last month that they are holding off on adding more equipment in North America.

Mining giants BHP Billiton and Rio Tinto have suggested that they may be scaling back on expansion, signalling another potential blow to Weir. Panmure estimates that mining equipment accounts for between 10 and 12 per cent of Weir’s earnings.

Weir shares closed at £16.35, up 19p on the day, as the stock recovered some of the ground lost earlier in the week.