Cheap Weir is gushing with recovery potential

Aggreko lacks pulling power; Domnick Hunter worth holding on to

Weir Group, the Glasgow-based engineer, has been priming its pumps business in advance of an economic recovery. Even if that doesn't come any time soon, the company should be able to make progress under its own steam.

Weir makes pumps for use in hydroelectric power projects, mining and the oil and gas industry, amongst others, making it one of the least exposed to the economic cycle in the engineering sector.

The City has been impressed by Mark Selway, the new chief executive, who seems determined to give the historic manufacturer of pumps and valves the shake-up it has been needing for so long. He, for his part, professes himself impressed by his managers' willingness to adopt new ideas. The aim is to propel Weir's margins to the same level as its better-run US rival, Flowserve, and according to the gushings of its house broker, UBS Warburg, to double profits within four years.

So much for the love-in. Mr Selway's first set of results, for the six months to 30 June, were OK, but not stellar. With turnover down 7.4 per cent, pre-tax profits of £25.6m, before exceptionals and goodwill, were flat on the first half of last year. Service work for UK utilities and the supply of pumps to overseas dam projects was strong. Growing sales of pumps for clearing slurry from mining projects in South America made up for slowing sales north of the continent. But defence industry and utility capital spending projects have been delayed, putting the group's consultancy division on the back foot.

The figures did show improvement in cashflows, which signals Mr Selway getting to grips with his task.

There is still much work to do to improve margins in the manufacture of clear water pumps and valves, which account for two-fifths of the group between them, but Mr Selway appears to have learnt from his rivals. His plans include screwing better deals from suppliers, investing in new products and moving some manufacturing to low-cost countries. There is so much room for improvement that it is difficult to see him falling flat on his face, even with the economy against him.

The shares, on 10 times the current year's earnings and with a 5 per cent dividend, are cheap enough to back.

Aggreko lacks pulling power

Remember the Californian energy crisis last year, when local utilities got into financial straits and the state had to endure power cuts? It seemed a wonderful investment opportunity at the time for a host of UK companies, but one by one they have all ended up getting a shock. ScottishPower found itself with a load of wholesale power it wasn't able to sell after all. Rotork, an industrial taps maker, thought huge investment in generating capacity would ensue, but it hasn't brought the expected extra sales.

And Aggreko, which hires out back-up power generators, is facing massive competition after every manager and his dog set up rival outfits. The glut of mobile generators is probably going to take another 18 months to work through the system, although there is good news in that General Electric has put its massive fleet up for sale. Figures for the first half of the year showed margins have slumped from 17.5 per cent to 11.8 per cent. This and the economic slowdown in the United States were the main factors behind the group's 4 per cent fall in pre-tax profits, which came in at £25.6m. The chief executive, Philip Harrower, has been able to move thousands of generators out of the US and into Aggreko's expanding international division. But decent full-year figures depend on the US enjoying a long hot summer that will boost demand for the company's air conditioning units, and avoiding the double-dip recession that stock markets have been predicting.

If there is a silver lining, it is that sliding US sales have been counterbalanced by a better operational performance in Europe and the prospect of new investment in other locales means Aggreko should be a much more balanced business in the future. For now, though, and notwithstanding their 22p rise to 157p yesterday, the shares are too risky to be attractive on a price-earnings multiple of 12.

Domnick Hunter worth holding on to

There is a good chance your last pint of Heineken or glass of Beaujolais has been through one of Domnick Hunter's filters. The engineering group makes purification machines used by everyone from drink and drugs manufacturers to heavy industry, and it has been growing profits despite the economic malaise.

The group is investing in the "recession proof" bits of the business with new products in the food and drink arena, while keeping a watchful eye on costs in the bigger industrial operations division, which filters compressed air used in manufacturing processes. This side counts Guinness among its big customers and, though it saw a drop of 2.2 per cent in sales in the six months to 30 June as customers in more economically exposed sectors cut back capital expenditure, it put in a creditable trading performance.

The company continues to generate cash, and has the financial scope to invest in the growing parts of the business.

There is also exciting military technology tucked away inside the group which, if it works well enough to impress the US government, could transform its finances. It has produced a system to protect tanks by filtering out chemical, biological and nuclear agents. The US has put $1m into development work and, amid videos of al-Qa'ida's chemical weapons experiments on dogs, the technology's time may have come. The potential market could be $1bn.

So there are plenty of reasons to tuck away this little engineer, which sits on a modest price-earnings multiple of 13 after the shares' rise of 12p to 264.5p yesterday.