WEIR GROUP
$120m 2014 revenues from Trio
Comminution is the process of crushing large rocks, grinding them smaller and then screening them to allow the larger ones to be crushed again. It is used in mining to make the ores in the rocks easier to get at.
This is what the machinery made by Trio does. The company is being bought by Weir Group as something of a consolation prize for its failure to acquire Metso of Finland in the summer.
The Metso deal was worth €4.5 billion (£3.6 billion); Weir is paying $220 million for Trio, a much smaller business. Metso is one of the top three in the market, with sales of more than $4 billion; Trio’s sales are $120 million, though admittedly growing fast as it takes share from the larger players.
About 50 per cent of Weir’s sales come from mining, mainly providing the pumps to move the raw materials around, and it has been moving into comminution both by developing its own lines and buying in technology. This makes sense, because both sorts of equipment go to the same end users. Trio, whose manufacturing is done in Shanghai, is strong in China and the US but relatively weak elsewhere, which gives Weir the opportunity to sell its product to existing customers and take it into other markets such as South America and Australia.
The numbers stack up, and returns will exceed the cost of capital in the first full year, 2015. Weir releases a trading statement early next month and has persistently refused to call the bottom of the mining market, hit by lost investment by the big global producers.
It gets two thirds of its sales from the after-market, replacing existing equipment, an area where Trio is weaker. The most recent figures suggest this is outperforming sales to new projects as miners concentrate on getting more from their existing assets by expanding production, and this will continue into next year.
There are probably no more transformational deals out there to match Metso. Weir has not done a bolt-on like this since the start of last year, and that was in US shale.
Its shares have been falling on the weaker oil price. Off 93p at £21.20, they sell on 15 time earnings. Given the slow recovery in mining, no reason to chase.
MY ADVICE Hold
WHY Weir is investing in mining, but the recovery in the sector, after cancelled projects by the big producers, still looks some way off
IMPERIAL INNOVATIONS
Pre-tax profit £27.4m (£3.8m)
Anyone who took my advice and invested in this summer’s £150 million cash-raising by Imperial Innovations at £4 will have no complaints. The shares were up 4p at 457.5p at last night’s close.
Alas, few had the chance. The placing was designed to widen the share register, about 90 per cent-held by three big investors, including Imperial College, which sold down to 20 per cent. Neil Woodford, who went into Imperial when working for Invesco, bought shares on behalf of his new vehicle, which now has 13.4 per cent. As a consequence the register is now 90 per cent-owned by four big investors.
This is a pity. The company is an investor in start-ups generated by four leading research universities and allows shareholders to have exposure to a range of such businesses — 95 at the end of July financial year-end, and one more since, while spreading the risk.
The biggest success last year was Circassia Pharmaceuticals, the allergy specialist that floated with a market cap of £581 million, allowing Imperial to realise a gain of £33 million while retaining 14 per cent.
The fundraising means it has £191.5 million to invest. The money will go into its existing portfolio to allow these to be brought on and eventually float or go to a trade sale. The small cost of investing in start-ups means that no further issue of equity looks likely.
The shares sell on an expected significant premium to the net asset value of 295p. They look an excellent way of getting exposure to fast-growth investments; a pity that buying opportunities are scarce.
MY ADVICE Buy, if you can
WHY Shares are a great way into high-growth start-ups
SDL
Net cash £4.9m end September
It is some achievement, in yesterday’s markets, to see your share price rise after an anodyne trading statement. SDL has a long history of profit warnings; there were still some signs of weakness at the halfway stage. The third quarter suggests that both sides of the business — software that allows companies to handle translation and social media — are moving in the right direction at last.
SDL has been another UK software company that has had difficulty converting the strength of its product into sales. Mark Lancaster, the founder, moved back as chief executive almost two years ago. He shows no sign of moving on again, which suggests that, while SDL has been substantially restructured, there is more to come.
The company now has net cash and is able to consider small infill acquisitions that add to its suite of products. The shares, up 21¾p to 332¼p, have not done much since the spring. They sell on about 24 times this year’s earnings.
Analysts’ projections are for two years of solid earnings growth, which makes that multiple look less challenging.
Buy for the long term.
MY ADVICE Long term hold
WHY SDL has recovered, but there is further to go
And finally . . .
Connect Group’s rather dull name replaced Smiths News, the papers and magazines distributor, in the summer. The company has pledged to get half of its profits from elsewhere by 2016. It announced two new initiatives yesterday. Pass My Parcel is a “click and connect” venture with Amazon which will deliver to local retailers. Jack’s Beans is a coffee vending service in the same outlets. Connect shares were among the few to rise yesterday, up 19 per cent. The shares have the advantage of a forward yield of 6 per cent.
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