Weir Group PLC

Weir Group PLC (LON: WEIR) is an FTSE 250 index listed Company that provides engineering solutions for minerals and mining technology markets.

WEIR will pay an interim dividend of 0.10 pence per share on 21 January 2022, while the ex-dividend date was 30 December 2021.

Investment Rationale for Valuation – Sell at GBX 1,800.00

• Revenue Deferral: The rephasing of shipments caused by the cybersecurity incident resulted in a revenue deferral of £50 million in September 2021.
• Flat Revenue during H1 FY21: WEIR’s top-line revenue witnessed a marginal decline of around 1% during H1 FY21.
• Increase in Net Debt: Net debt as of 30 September 2021 was slightly higher than that reported as of 30 June 2021.
• Technical Indicators: From a technical standpoint, WEIR is hovering between the upper Bollinger band and the middle Bollinger band, indicating a bearish price pattern.

Key Risks

• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.10% during Q3 2021, which remained merely lower-than-expected growth of around 1.30%.
• Supply Chain Issues: The disrupted supply chain and change in demand patterns due to the COVID-19 crisis can further impact revenue and profitability.

Q3 FY21 Trading Update (for the three months ended 30 September 2021, as on 07 October 2021)

 (Source: Company Website)

• Profitability Guidance: WEIR anticipates PBTA ranging from £230 million to £245 million for FY21.
• Order Book: The order book witnessed a significant jump of around 31% during Q3 FY21.
• Operational Progress: The Group's book-to-bill stood at 1.14x during Q3 FY21.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative) 

Conclusion

The Company had recently trimmed its profitability guidance because of the deferred revenue in the month of September 2021. Moreover, WEIR may show a sizeable correction in the stock price because of several factors such as rising inflation, disappointing UK GDP figures, and ongoing fears regarding the Omicron variant of coronavirus. Thus, it would be prudent for the clients to book profit at the current levels on this Company. The stock made a 52-week low and high of GBX 1,541.61 and GBX 2,108.00, respectively.

Based on the reduced revenue guidance, reduction in net debt during Q3 FY21, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Weir Group PLC at the current market price of GBX 1,800.00 (as on 10 January 2022 at 08:05 AM GMT). 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

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