Bottom Line: Weir's timely buy

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The Independent Online
CALL it luck or shrewd judgement, but if Weir Group had announced its half-time figures in isolation yesterday it is doubtful whether the fat premium rating enjoyed by its shares could have been sustained.

As it is news of the pounds 135m acquisition of the US company EnviroTech provided a helpful diversion. It is paying an exit p/e of between 13 and 14 for the business and the combination of a forward p/e of 18 on Weir shares and low short-term borrowing costs means that the acquisition will be earnings-enhancing in its first full year.

This cheering piece of news was the reason behind a 2p rise in Weir's shares to 304p compared with a theoretical ex-rights price of 292p. So Weir retains its premium rating despite interim pre-tax figures showing an underlying 4 per cent fall, excluding redundancy costs in the previous year.

Weir's statement on the trading outlook was scarcely more sparkling. Amid intense price competitiveness order inflow was just about keeping pace with sales, which were expected to show only a slight upturn in the second half - hardly the stuff to support a recovery rating.

For years past Weir's pump manufacturing operations have been largely anchored in the UK and restricted both in technology - to large scale pumps - and in customer markets.

Weir, without taking a severe financial risk, has doubled its exposure to the key markets of the Americas and Europe to 29 per cent and 8 per cent of sales respectively, and made itself one of the top five or six makers in the world of its type of pump.

The deal opens up new avenues of growth into minerals processing and the chemical and oil refinery markets. Not only will EnviroTech's 'one stop' marketing approach give Weir products fresh access to markets, but production can also be relocated.

EnviroTech is even stronger in spares than Weir so a recovery in the mix will multiply the effect any future sales gains. Weir looks set to retain a premium rating.

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