Aftermarket sales drive Weir's margin growth

8th Mar 2011 07:21

Global engineering solutions provider Weir Group enjoyed record margins in 2010 as order input rose by almost two-fifths from the year before.Order input, calculated using average exchange rates for 2010, rose 39% £1,904m in 2010 from £1,366m in 2009, and was up 36% on a like for like basis.Underlying pre-tax profit rose 58% to £295m from £187m in 2009, on revenue that climbed 18% to £1,635m from £1,390m the year before.In constant currency terms, revenue increased by 12% while excluding the impact of current year acquisitions, like for like revenues in constant currency were up 10%. Aftermarket sales are accounting for an increasing proportion of revenue, rising to 58% of the total in 2010 from 54% in 2009, principally because of the higher growth in North American upstream oil and gas operations.This is having the effect of boosting the operating margin, which increased to 18.9% from 14.7% the year before."During the year we made good progress in moving forward our strategic agenda, including five acquisitions which broaden our product portfolio and further increase our exposure to high-growth emerging markets. The group is well on track to achieve its ambition to double 2009 profits by 2014," claimed Keith Cochrane, Weir's chief executive.Two of the group's three end markets bounced back strongly in 2010, with only the power and industrial division letting the side down, though the group expects this division's performance to improve on 2011 on the back of a substantial nuclear workload.The oil and gas shale markets in North America were in good health, benefiting from the increasing use of hydraulic fracturing, while global mineral markets largely recovered, thanks in part to China's insatiable demand for commodities.The board has recommended a final dividend of 21p, up from 16.2p the year before, taking the full year dividend up to 27p from 21p in 2009.Evolution Securities said the results were better than expected and should generate earnings forecast upgrades, though elements of the "robust outlook statement" were designed "to stop forecasts from going too high"."We believe that a portfolio which is almost entirely by exposure to structural growth markets - mining, oil & gas and power generation - is attractive to investors and increasingly to larger corporates particularly characterised by the GE [General Electric] sweep up of related assets," Evolution analyst Harry Philips said. The broker thinks fiscal 2011 earnings per share estimates could be bumped up as high as 115p from 110p currently. "There is considerable balance sheet optionality which has the scope to take Weir beyond our 2000p price target in the medium term," Evo said.Panmure Gordon, which has a "buy" recommendation for the stock, said the results were ahead of its expectations. "There are a number of complex moving parts, however, that take the shine off the achievement and the net debt result is larger than forecast," said analyst oliver Wynne-James.