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Weir lagging mining boom

The group expects delayed maintenance and expansion spending to boost 2021 orders
March 2, 2021
  • Operating margin and profit stable on 2019, while sales and orders declined 
  • New dividend policy but no new dividend

Miners had a stellar end to 2020. Dividends hit record highs on the back of recovering bulk commodities and metals. It was more subdued for companies supplying the industry.

Weir Group (WEIR), which completed the sale of its oil and gas business last month, saw orders and sales fall last year on a like-for-like basis as improvement and expansion work was put on hold due to the pandemic. 

Yet the group did manage to keep its operating margin and operating profit steady and chief executive Jon Stanton said profits would return to growth this year. “We’ve had a good start to 2021 and we expect to deliver growth in full-year constant-currency profits subject to any further disruption from the ongoing Covid-19 pandemic,” he said. 

The group decided not to bring back its dividend, after also cancelling the 2019 final payout of 30.45p. However, a new capital allocation policy of paying out a third of adjusted EPS (74.4p in 2020) has been established for “future dividends”.

Weir’s two key divisions are minerals, which provides processing equipment for mines, and ESCO, which provides parts for large trucks and other mine machines. Both had similar order and sales declines last year. 

The outlook, given the mining industry’s strength and potential supercycle this year, is positive for 2021 and beyond. Weir also said the deferral of projects last year meant there would be higher demand this year. Sales this year will be hit by the 2020 weighting of the £100m order from Fortescue Metals Group’s (AU:FMG) Iron Bridge iron ore mine in Australia. There was turmoil within FMG recently, in which the executives running the $3bn (£2.1bn) project departed. 

The miner said it was reviewing the “contractor strategy and selection”. Happily for Weir, the lion’s share of its original equipment order is done, with £80m in sales arriving from FMG last year, and its £95m aftermarket and service contract should avoid the chop given Weir’s equipment is already in place. 

Thanks to the surge in mining interest last year, Weir’s share price more than doubled between the March equities crash and the start of 2021, to over 2,000p. There was a 5 per cent fall to under 1,950p after the release of the 2020 results, perhaps from shareholders perturbed by the lack of a dividend. The shares are not cheap, valued at 22 times forward earnings, but we think the group will deliver through the mining rush. Buy.

Last IC View: Buy, 1,488p, 5 Oct 2020

WEIR GROUP (WEIR)   
ORD PRICE:1,932pMARKET VALUE:£5.02bn
TOUCH:1,931-1,933p12-MONTH HIGH:2,130pLOW: 609p
DIVIDEND YIELD:nilPE RATIO:36
NET ASSET VALUE:503p*NET DEBT:80%
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20161.8442.820.144.0
20171.9919972.744.0
20182.4586.17.446.2
2019**2.0518955.516.5
20201.9618453.3nil
% change-4-3-4-
Ex-div:na   
Payment:na   
*Includes  intangible assets of £1.26bn, or 486p a share **Restated post sale of oil and gas division