The Investment Column: Patience pays off at the pumps group Weir

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The Independent Online

Our view: Buy

Current price: 678p

For a long while, Glasgow-based engineer Weir Group was one of the sleepier stocks in the market, meandering along not doing much wrong but not attracting a rating that suggested anything other than more of the same. But a radical restructuring of the company, along with asset sales and the $658m acquisition of rival SPM Flow Control has awoken Weir from its slumber and long-term shareholders have been well-rewarded for their patience.

Yesterday's interim results showed just how much progress has been made in a relatively short period of time. Despite a very bullish pre-close trading update, the numbers still managed to beat most market forecasts. Pre-tax profit for the first half rose by 40 per cent to £45.4m, on the back of a 13 per cent rise in revenue to £458.7m.

Part of the UK pumps business, which Weir has been making since 1871, has been sold along with the interest in Devonport Docks. It still makes a wide variety of pumps and valves used in the mining, oil, utility and maritime industries, on top of specialist engineering design work in the nuclear, defence and gas industries. Its third arm covers the maintenance and repair of its products.

Looking forward, Weir should be able to build on an impressive performance in its minerals division, which reported a 34 per cent jump in its order book to £263.1m. In spite of the daily fluctuations in the metals markets, demand for mining capital goods has never been stronger, and recent tragedies in China and Utah will put even more premium on top-quality machinery.

With the long-term outlook for mining remaining favourable Weir ought to be able to maintain its current momentum and 10 per cent margins. Weir's non-cyclical businesses, including defence and utilities, make the company a lower-risk way to play on the boom in mining and oil industries.

Thanks to the rally the stock has been on, the shares are no longer being given away. The market has re-rated Weir, deservedly so, and according to figures from the broker UBS the stock now trades on 15.9 times forecast 2008 earnings. That looks a full price, but this is an excellent set of first-half numbers and there is room for upgrades going forward. Investors should also expect to see an improved contribution from SPM in the coming months, and with a strong balance sheet and excellent cash flow, there is room for more acquisitions. Quality doesn't come cheap, but yesterday's post-results bout of profit-taking has thrown up a good buying opportunity.

Electric Word

Our view: Risky buy

Current price: 9p

Traditional publishing has struggled over the past couple of years - newspaper circulation is down, book publishers have paid huge advances for flops from semi-literate z-listers and the magazine world remains incredibly competitive. However, some smaller specialist publishers are thriving - and judging by yesterday's numbers, Electric Word is one of them.

The company publishes a range of educational and sport-related publications, mainly in the form of newsletters delivered both online and through print. But don't go looking for any of their titles in your local newsagent, they are aimed very much at the commercial sports and education community, including teachers, educational administrators and sports coaches. Most are available only via subscription, which creates attractive, highly visible recurring revenue.

Yesterday's results were stunning - pre-tax profits for the first half rose by 140 per cent to £750,000, while turnover surged 46 per cent to £6.6m. Although the numbers at this stage are very small there is scope for further growth, and the numbers are underpinned by the fact that most of the demand for Electric Word's publications and new titles comes from government education policy and spending.

This is not a stock for widows and orphans, but for a micro-cap company its shares have shown remarkably consistent performance over the past five years. Forecasts from the house broker, Panmure Gordon, put the stock on a forward multiple of just 11.2 times - a very attractive price for this kind of growth rate. Worth a punt.

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