Weir Group works on margins as miners pinch pennies

The ground-breaking message from mining equipment and services company Weir Group (WEIR) at its interim results was that gold miners are keen to extract more gold from their land when the precious metal is at record levels. But it was its own internal workings that were more apparent on the balance sheet, with adjusted operating profit climbing 8 per cent on last year to £215mn even as revenue came down 3 per cent on a constant currency basis.

The sales figure was bang on analysts’ forecast while the adjusted operating margin was a full 1.2 percentage points ahead. 

The reasons for the sales drop will be familiar to close followers of the stock. Weir flagged last year that Russian revenue would stop as existing orders ran down (interestingly, the company managed to get £300,000 out of the country in the first half, and £7.7mn last year), and also a decline in Canadian oil sands production. 

The more important theme was the mining industry’s preference for improving existing machinery and processes rather than spending tens of millions of dollars on new kit. “Minerals activity in the first half of the year continued to be dominated by small brownfield debottlenecking and sustainability related projects, with only three orders received over £5mn, and a large number of smaller orders in line with our expected run rate,” Weir said, repeating the debottleknecking line from its 2023 results. 

Operating profit guidance for the year has been maintained but the company said 2024 sales would be near the low-end of analyst estimates, or £2.6bn. This would be a slight drop on 2023. The interim dividend is up 0.1p a share to 17.9p, in line with the payout policy. 

Miners are being very selective about where their cash goes at the moment. Weir’s margin work is impressive but this remains a tricky environment. Hold. 

Last IC View: Hold, 1,822p, 29 Feb 2024