Chief executive Keith Cochrane is playing down expectations for Weir's (WEIR) first half, but is so confident things will improve he's already inking in double-digit dividend growth for 2013. Last year's 12 per cent increase in underlying pre-tax profit to £443m was a record and in line with guidance. Given forecasts for further growth this year and significantly higher free cash flow, the shares are now up 17 per cent since the start of the year.
Much of the market's focus has been on Weir's exposure to the North American shale, or fracking industry, which slowed sharply late last year. Oil and gas equipment orders almost halved, yet acquisitions and extra aftermarket work nudged underlying operating margin up to 25 per cent, guaranteeing double-digit growth in cash profits to £211m. And an uptick in frac pump demand is expected as customers work through excess inventory, driving aftermarket orders and bigger profits in the second half.
What's more, demand outside North America grew 38 per cent in 2012 and is "only going one way", says Mr Cochrane. Weir's larger minerals division reported strong growth, too. Cost-cutting and aftermarket growth helped profits increase by a fifth to £256m, and the 160 basis point increase in margins to 19.2 per cent took even the company by surprise.
Numis Securities expects adjusted pre-tax profit of £464.7m in 2013, giving adjusted EPS of 156.7p (from £443m and 150.1p in 2012).
WEIR (WEIR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 2,203p | MARKET VALUE: | £4.7bn | |
| TOUCH: | 2,202-2,205p | 12-MONTH HIGH: | 2,273p | LOW: 1,352p |
| DIVIDEND YIELD: | 1.7% | PE RATIO: | 15 | |
| NET ASSET VALUE | 615p* | NET DEBT: | 53% | |
| Year to 28 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 1.35 | 160 | 53.8 | 18.5 |
| 2009 | 1.39 | 170 | 58.8 | 21.0 |
| 2010 | 1.64 | 277 | 94.3 | 27.0 |
| 2011 | 2.29 | 391 | 132 | 33.0 |
| 2012 | 2.54 | 424 | 147 | 38.0 |
| % change | +11 | +8 | +12 | +15 |
Ex-div: 1 May Payment: 31 May *Includes intangible assets of £1.45bn, or 684p a share | ||||
