Weir shows its new confidence:The Investment Column

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The Independent Online
The early 1990s marked a sparkling period of revival for Weir Group, the pumps and valves maker based in Scotland's former industrial heartland. But the last few years have not been kind. The boom resulting from the water industry's capital investment programme and the rash of combined cycle power stations has run out of steam, leaving the group to slug it out internationally with big rivals like KSB of Germany and Sulzer of Switzerland. With competition intense, Weir's shares have suffered badly, underperforming the market by nearly 40 per cent since the start of last year.

But the first tentative signs that the bottom may have been reached came with yesterday's half year results. Although pre-tax profits sank 4.8 per cent to pounds 19.2m, Weir signalled its confidence in the outlook by lifting the interim dividend by 5 per cent to 2.31p.

Analysis of the figures shows some grounds for that confidence. Associates caused most of the damage, with the share of profits from Devonport naval dockyard slipping pounds 2m after disruption caused by safety modifications earlier this year and a pounds 1.5m turndown at Strachan & Henshaw, the Bristol based specialist handling business. Devonport is already out of the woods, while there are signs that the weak markets which hit Strachan are recovering.

More importantly, margins in the main pumps and valves business have been maintained or improved in the half year. Valves were ahead in turnover, profit and margins. In pumps, scene of some of the most severe competition, Weir continues to hold the line on pricing and has seen modest margin improvement. While rivals continue to win business at cut-throat prices, there is some hope that management changes at KSB will lead to a more realistic approach.

Perhaps most encouraging, although order intake was flat at just under pounds 300m in the first half, that hid recovery from a depressed first quarter, with third quarter enquiry levels also higher. The group has a decent record with acquisitions and, with up to pounds 100m to spend, more are imminent. Profits of around pounds 48m this year would put the shares, up 18p at 234p, on a p/e of 14. Hold for the recovery.

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