Caterpillar And Weir Strike A Deal For Weir's Oil & Gas Operations

Less than a month ago, I speculated in an article on Caterpillar (CAT) that the company could be a natural suitor for Weir Group’s (OTCPK:WEIGY) Oil & Gas business, and now we have the announcement of the deal. Caterpillar and Weir announced on the morning of October 5 that the two companies came to an agreement for the cash sale of the business to Caterpillar.

This looks like a win-win to me for both parties, though perhaps a more clear-cut win for Weir Group. Weir wanted out of the oil & gas market and this deal gives them a clean exit and the freedom to restructure as a pure-play on mining and aggregates. For Caterpillar, management has wanted to build up its oil/gas pumps business, and Weir will bring additional product and service leverage opportunities beyond that. The major “but” for Caterpillar is the timing and scale of an eventual recovery in North American onshore oil/gas drilling activity.

 

Read more here: 

Caterpillar And Weir Strike A Deal For Weir's Oil & Gas Operations

Weir's Strong Mining Business Holding Up Well, But Exiting Oil & Gas Could Take Time

This is a bad time to have exposure to oil and gas capex, and fracking machinery in particular, as the vast majority of the North American fleet is idle and there’s really no demand for either new equipment or aftermarket parts. It’s not such a terrible time to be in the mining equipment business, though, and Weir Group’s (OTCPK:WEGRY) (WEIR.LN) strong aftermarket-driven business has held up quite well during this downturn.

Although I was already expecting a weaker outlook for oil/gas when I last wrote about the company, I wasn’t expecting what COVID-19 would ultimately do to the company’s core markets, and the shares have underperformed, including underperforming other mining names like Epiroc (OTCPK:EPOKY). Although I expect healthier demand for mining equipment in 2021, and I think the negative impact of oil/gas is probably more than amply reflected in the share price, it’s going to be an issue for sentiment until management sells the business. I do still see fairly attractive long-term upside here, but in the near-term outperforming the likes of Epiroc and Metso could be difficult so long as oil/gas remains so weak.

Read more here: 

Weir's Strong Mining Business Holding Up Well, But Exiting Oil & Gas Could Take Time

Weir Group Taking Its Lumps, But Mining Demand Will Return

It’s hard for me to say that Weir Group (OTCPK:WEGRY, WEIR.LN) has had a bad year when the shares are up more than 20%, but Weir hasn’t benefited as much from the mining rebound as hoped, and the company is getting hit again by weakness in its oil and gas business, leading it to underperform fellow mining equipment company Epiroc (OTCPK:EPOKY), though it still has outperformed FLSmidth (OTCPK:FLIDY).

I still like the medium- to long-term outlook for mining equipment, as the world still needs copper, iron, et al, and mining companies are under increasing pressure to do more with less (less water, less power, less labor, less waste), but the near term could still have a few negative surprises. Weir’s strong aftermarket business will definitely help, but investors might need a little patience to see this one work out.

Click the link to continue:
Weir Group Taking Its Lumps, But Mining Demand Will Return

The Market Doesn't Seem So Pumped About Weir

Weir Group (OTCPK:WEGRY, WEIR.L) got hit hard on the simultaneous declines in oil/gas and mineral/mining capex, and the company is now benefiting as spending recovers strongly in both markets. Although the bulk of Weir’s business is, and has virtually always been, its minerals business, the shorter-cycle oil/gas business tends to be the tail that wags the dog, with investors putting a lot of energy into worrying about near-term completions metrics, frac fleet spending, and market share trends.

Although I do have some longer-term market share concerns about the oil/gas business, I believe Weir is likely looking at a good stretch here of oil/gas and minerals order growth. I thought the shares offered about 5-10% upside back in late May of 2017, and the local shares are up about 10% since then. I still see a little upside from here, but investors should note the propensity for short-term excitement/worry about U.S. onshore activity to move the stock.

Read more here:
The Market Doesn't Seem So Pumped About Weir

IMI Group Working On Self-Improvement Through Still-Challenging Markets

Seemingly every company is looking to streamline its supply chain, improve manufacturing efficiency, and reduce its operating overhead, but the self-improvements at IMI Plc (OTCPK:IMIAY) (IMI.L) are a little more urgent. While declines in the oil/gas, power, petrochemical, industrial automation, and commercial vehicle markets have certainly hurt, IMI also saw some self-inflicted damage from under-investment in capex and R&D, too many non-strategic assets/businesses, and a lack of integration and operational efficiency. Credit, then, to CEO Mark Selway who has been tackling these issues in recent years while also dealing with serious market headwinds.

The opportunities for self-improvement and market recoveries haven't gone unnoticed, as IMI's shares are up about 25% over the past year - less than the likes of Weir Group (OTCPK:WEGRY) and Parker-Hannifin (NYSE:PH), but on par with Rotork (OTCPK:RTOXY) and SMC (OTCPK:SMCAY). My expectations for recoveries in downstream oil/gas and power may be too conservative, but I'm looking for mid-single-digit growth in revenue and FCF from IMI. That supports a mid-to-high single-digit return at today's level, which is not bad on a relative basis but arguably not enough for a company that still has some work to do on the self-improvement front.

Readers should note that IMI's ADRs are not very attractive from a liquidity standpoint, but the London-listed shares offer ample liquidity and most quality brokerages now offer such market access.

Continue here:
IMI Group Working On Self-Improvement Through Still-Challenging Markets

Weir Group Poised To Benefit As Natural Resource Companies Get Back To Work

Weir Group (OTCPK:WEGRY) (WEIR.LN) hasn't been badly treated over the past year. As investors have shown renewed enthusiasm for companies leveraged to both oil/gas and mining equipment, Weir Group shares have risen more than 50% - keeping good company with the likes of Metso (OTCQX:MXCYY), FLSmidth (OTCPK:FLIDY), Atlas Copco (OTCPK:ATLKY), and Sandvik (OTCPK:SDVKY). Margins are only just starting to recover, though, and it remains to be seen just how strong the recovery in natural resources capex will be. What's more, Weir Group has issues to address in its seemingly perennially disappointing Flow Control business.

Valuation seems quite healthy, if not generous. Even if I assume that Weir regains its prior peak revenue in 2019, grows in line with historical norms for natural resource capex growth (that is, before the "super-cycle"), and reaches/holds double-digit FCF margins (something it's never done before), I can't get to a compelling DCF-based fair value. On the flip side, if the company can generate three to five years of mid-teens EBITDA growth on the back of this recovery, a fair value 5% to 10% above today's price is arguably in play. Investors considering these shares should consider the London-listed shares if possible, as they offer considerably better liquidity than the ADRs.

Continue here:
Weir Group Poised To Benefit As Natural Resource Companies Get Back To Work

Seeking Alpha: A More Focused Sulzer Should Be A Better Sulzer

Leading pump manufacturer Sulzer (SULZF.PK) (SUN.VX) hasn't been on the best run of late. Relative to fellow pump players Flowserve (FLS) and Weir Group (WEIGY.PK), Sulzer's performance over the past year (up about 4%) has been pretty poor, due in very large part to a huge miss with second quarter earnings and a three-day fall of nearly 20%.

Admittedly, the company's guidance for fiscal 2013 isn't exciting - sales and order growth in the low single digits - and Sulzer's margins and returns on invested capital have been stepping lower since 2008. That said, this company has 20% to 50% share in its core pump markets and a decision to refocus around its pump and fluid control businesses in markets like oil/gas, power, and water should lead to improved results down the line. Buying Sulzer today is a contrarian move, and a bet on improved operating performance, but one that I don't think is unreasonable given the company's past performance and future potential.

Please follow this link for more:
A More Focused Sulzer Should Be A Better Sulzer