Wednesday tips round-up: Weir Group, Babcock International

11th Jun 2014 08:52

Oil rig operators in the US are going all-out, drilling non-stop seven days a week to hit their targets. That is very good news for Weir Group. The company derives 40% of its sales from the oil and gas sector, with the bulk of that coming from America, where it has a strong position manufacturing the pumps used in 'fracking' or non-conventional oil. Now Societe Generale believes that capacity shortages will begin to appear in the industry from the start of 2015. Furthermore, the relentless pace of activity means that the company´s pumps can wear out up to three times faster than normal, which will benefit its aftermarket business. Another positive for the company, analysts believe, is its decision to walk away from an acquistion of Finnish peer Metso. Nonetheless, existing differences in take-over rules in both countries means that even in the near term the Scottish group could return with a revised offer should it change its mind. Even so, trading at 18.1 times´ earnings and offering a dividend yield of just 1.4% there appears to be little value in the stock, the price of which has already risen by 25% this year. Hold says The Daily Telegraph´s Questor column. Babcock International´s share price more or less stabilised on Tuesday after a bit of an investor relations mishap in the previous session. Just before the close of trading on Monday the company released a brief statement in which it in effect told the markets that it had lost several contracts with the Defence Infrastructure Organisation (DIO) whose value ran into the billions of pounds. That provoked an immediate drop in its share price. However, whereas the top line figure on those maintenance and building contracts is substantial, at four billion pounds, the margins are being squeezed and the revenues are spread out over many years. In fact, the company's own Chief Executive has long argued that the company needs to wean itself from over reliance on the Ministry of Defence. Similarly, one analyst termed the event a 'storm in a teacup' arguing that the outsourcer´s business is broadly-based. Nevertheless, the above also shows that the firm does not always get its own way. So 'hold' The Times' Tempus says. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.