Wind back the clock just over a year and Weir Group was on the ropes. The Glasgow engineer had been hollowed out by the oil price crash and was haemorrhaging staff, profits and orders. Its £825m debt mountain led some to speculate that Weir might need a rights issue to keep the banks at bay. Its long-standing boss, Keith Cochrane, left in September and was replaced by another bullet-headed executive, its former finance chief Jon Stanton.
What a difference a year can make. As the chart shows, the shares have more than doubled since they troughed early last year. The recovery in the oil price, the Opec cartel’s deal to limit production and the uptick in the global economy sent orders for its pumps soaring.
Weir’s fortunes are entwined in America’s shale gas industry. It supplies the pumps used by frackers to blast sand and water underground and break open the rock that holds trapped oil and gas. Shale gas rigs have sprung back to life along with the recovering oil price, driving up orders for its parts.
The logical next step is a pick-up in prices for these parts. Weir is at pains to point out that price inflation has not yet arrived, and its factories are only about 50% full. But as the shale rigs multiply, it’ll surely come.
Failing that, there’s always a takeover. Weir has been a sitting duck for as long as anyone can remember, but no one has yet managed to tie up a deal. Flowserve, a US rival, is thought to have sniffed around a year ago for a possible inversion deal, but now has a new boss and other priorities. Still, if far bigger beasts such as Halliburton and GE decide to take a look, the drop in sterling gives them an attractive entry point. Buy.
Dull G4S shines
Ashley Almanza, G4S’s quiet South African accountant-turned-chief executive, has made a career from staying out of the limelight.
Since the security giant was put through the wringer for its 2012 Olympics and electronic tagging debacles, he has tried to run G4S in much the same way as he is perceived: steady, boring and predictable. There have been pitfalls along the way — such as abuse of juvenile prisoners— but it has largely managed to keep its nose clean, while selling off unwanted assets.
Meanwhile, G4S has crept back up the market, hitting a £4.7bn valuation that gives it a good chance of rejoining the FTSE 100. Next comes Almanza’s plan to grow G4S into higher-margin hi-tech services, such smart CCTV, which will hike margins and growth. Buy.
