The Investment Column: Weir's upbeat statement brings in few buyers

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Weir Group

Our view: Hold

Share price: 941.5p (+23.5p)

Investors relying on analyst advice will be left somewhat confused by commentary on the engineering outfit Weir Group, which makes pumps and valves for the oil, gas and mining industries.

The company yesterday issued an upbeat trading statement saying that full-year numbers will be "substantially ahead of 2007 and at the upper end of current market estimates". Profits are expected to come in at about £163m.

Despite the good news and a number of watchers saying "buy", the statement did not lead to a rush of new punters. Yes, the share price did move to a year high, but was only up 2.6 per cent on the day, suggesting that investors do not see huge momentum left in the stock. Indeed, Weir is expensive, and buyers may prefer to look elsewhere for exposure to the sector.

Analysts at Evolution say that Weir trades at about 17 times earnings, versus a market average of around 10 times. Yes, the group looks attractive against rival Flowserve, which is valued at 21 times, the watchers say, but far better punters go for Invensys or Cookson, which are rated much closer to the sector average.

There is a bull case. Weir is reorganising its business into three divisions – mining, oil and gas, and power and industrial markets – and this seems to have impressed the experts.

Those at Landsbanki say that the move is a good one and that investors should buy. However, they only see the stock increasing to 960p (Numis says it will get to 1,020p).

Mark Selway, the chief executive, says that the reorganisation of the business is partly an attempt to address the valuation and that it is unfair to be lumped with a selection of not-terribly close industrial comparisons, such as Cookson.

Better, he reckons, to compare Weir to closer American peers, against which the group looks more favourable.

Operationally, the company no doubt benefits from the incessant demand for oil and gas; as the price increases, so hitherto uneconomic fields suddenly become viable, increasing demand for Weir's equipment. For investors, the story is not as rosy, and buys elsewhere would be wiser. Hold.

ACM Shipping

Our view: Hold

Share price: 267.5p (-2.5p)

Investors in shipping brokers ACM Shipping are laughing all the way to the bank. Since 23 April, when the group said in a trading statement that results would be "significantly ahead of market expectations" the share price has soared, leaving yesterday's closing price at the year highs. This is also a problem. The company does not like to talk about the performance of the stock, but analysts at its broker, Noble, reckon that the shares are running out of gas. "We expect a pause in the recent share price rally," they say, explaining that the group, which trades at 11.7 times its 2008 price to earnings ratio, already comes at a hefty premium to its peer group, at 10.6 times.

That is not to say that ACM is not a good company, far from it. As the price of oil increases, so the brokerage is able to charge more: its revenues are in dollars, but it has hedges in place to guard against the weak greenback.

The company, which true to its word announced a 49 per cent increase in pre-tax profits to £5.5m yesterday, also said it has bought small tanker brokerage Harries & Dixon for £2.5m. Hitherto, ACM has not operated in the small-tanker market, so Harris & Dixon should be a neat fit.

Some existing shareholders might want to sell now and take a profit, others will be content to hold on to a strong stock, but will understand that future returns may not be great as the past few months. Hold.


Our view: Hold

Share price: 709p (+64.5p)

Rupert Soames, the chief executive, says has done his homework and if he gets full marks, his rental power supply group Aggreko, which yesterday said that full-year profits would be ahead of expectations, is set to be a winner for investors.

The company has two strands to its business. In Europe and North America it rents out short-term power generators for events and in case of accidents. However, it is in the emerging markets where power usage is going thorough the roof that Aggreko really makes its money. The company provides temporary power stations, for about two years, where demand outstrips the capability of the local grid.

The market liked the news yesterday and pushed the stock up 10 per cent to the year highs.

Analysts at KBC say that while weakness in the United States market should be more than offset by strength elsewhere, investors should hold, rather than buy the stock, which is rated at 17 times earnings. UBS says the stock is only really worth 700p.

Mr Soames, while wisely not commenting on whether the shares will go up or down, says that the long-term direction of supply and demand in power is only going to put increasing pressure on supplies.

As the only "pure play" ancillary power generator, Aggreko is well placed to do very well over the next few years, he says, and even if the group trades at a premium to the sector, it is still worth backing to the hilt. Investors should look for evidence of more potential in the share price. Hold.