Further drag likely from Weir

Management appeared confident that consolidating manufacturing facilities and potentially selling up to £100m-worth of non-core assets would ease it through these difficult times. Judging by the reaction of the market, which has also found hope in the recent bounce in battered commodity prices, many believe this action will underpin the survival of one of the shares' remaining attractions - the historic 44p full-year dividend.

We disagree. Net debt of £825m represented 2.5 times last year's cash profit, and brokers forecast that the ratio will rise to more than three times this year. That threatens to bring the group uncomfortably close to a key financial covenant, which its bankers set at 3.5 times. Trading wouldn't need to deteriorate much further than currently expected before danger signs started flashing, and that could prompt a dividend cut or even a rights issue.

While commodity prices have rebounded recently, Weir's end markets still look fragile, which means there are grounds to fear further disappointments could be on the cards following an interminable slew of forecast downgrades - according to Bloomberg data, current-year EPS forecasts have fallen by 47 per cent over the past 12 months alone.

A particular area for concern is that the so-far-resilient minerals division could finally come unstuck. During 2015 prices for iron ore, copper and gold fell 40 per cent, 26 per cent and 12 per cent, respectively, as demand in key nations such as China slowed substantially. Last year, capital expenditure in the mining sector dropped about a quarter. Against this challenging backdrop, Weir's order intake, at constant currency, was down by a very respectable 4 per cent. This was made possible because the group supplies apparatus used in processing, an area less vulnerable to the cancellation of new mines.

Recent data suggests this could be about to change, though. Not only did a fall-off in order intake accelerate in Weir's fourth quarter, but key customers such as Metso, Rio Tinto and Continental Resources have since confirmed that 2016 budgets will be slashed. Given that this division accounted for more than 70 per cent of profit last year, widespread signs of a slowdown in activity could have devastating implications.

Don't bank on the group's oil and gas operations picking up the slack, either. Providing pumping equipment for shale oil drilling isn't the best line of work to be in when cash-strapped customers in the industry are on an efficiency drive. In the core US market rig count fell 61 per cent last year. And with an increasing amount of fracking fleet lying idle, it's hard to see an immediate turnaround.

True, management has been cutting costs to help cushion this blow, pushing through annualised savings of £110m last year. Of last year's £365m exceptional charge, £92m was spent cutting costs at the oil and gas business, with most of the rest relating to £251m of impairments. Despite these efforts to mitigate weakness at the oil and gas division, which included axing 40 per cent of the North America workforce, divisional operating profit still slid more than three-quarters to £58m. With pricing power weak, the operating margin more than halved to 10 per cent.