Weir expects FY oil & gas revenue, profit above analysts' estimates

Weir surged on Monday after saying its updated outlook for the group's full-year performance is now for strong constant currency revenue and profit growth, with revenues and operating profits in the oil & gas division set to be above the upper end of analysts' estimates as upstream North American markets have recovered more strongly than anticipated in recent weeks.

The FTSE 250 company said higher levels of frack fleet utilisation and significant tightening of industry capacity are both benefiting the its oil & gas division. As a result, it has seen increased volumes, stronger operating leverage and modest pricing recovery ahead of prior expectations, and has delivered low double-digit operating margins in the first half.

Assuming supportive market conditions continue, the division is now expected to deliver low-teens operating margins through the second half with full year revenues and operating profits that are above the upper end of analysts' estimates.

Weir said this growth will be partially offset by one-off charges to operating profit of £13m related to previously announced legacy contract delivery challenges in the Gabbioneta business, which is part of the flow control division. Meanwhile, expectations for the minerals division remain unchanged.

The updated outlook for the full year performance is now for strong constant currency revenue and profit growth and as previously indicated, profits will be weighted to the second half of the year.

Numis bumped the stock up to 'add' from 'hold' following the update. "Arguably this is much more in line with industry norm at present and is encouraging to see that Weir is now seeing similar pattern to others, in particular some uptick to pricing," the brokerage said.

It lifted its 2017 pre-tax profit estimate to £278m from £245m and its earnings per share forecast to 97.3p from 85.4p.

At 1040 BST, the shares were up 8.1% to 1,972p.