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Credit Suisse likes Weir's deal for ESCO, ups price target
(WebFG News) - Following Weir's acquisition of US mining tools-maker ESCO, and the announcement of its intention to sell-off its Flow Control business, analysts at Credit Suisse approved of the course the deal had set the company on, in terms of revenue and market share expansion.
Regarding the ESCO deal, Credit Suisse expects Weir's revenues to grow 10% in 2019 and that, by 2020, the Scottish firm should have achieved two-thirds of its £21m of targeted cost synergies.
Credit Suisse highlighted a great deal of potential if Weir was able to utilise its service network to build up ESCO's position in Mexico and Africa; however, it noted this would require market share gains from its already high global level of 40%.
"Strategically, we like the deal as it increases the revenue share of Minerals, the highest multiple business, and for the opportunity to expand ESCO into regions where Weir has a strong service presence," the analysts added.
Elsewhere, Weir's message on pricing was unchanged at for "low single-digit increases for 2018".
Nevertheless, despite management highlighting that its year-to-date oil and gas mix had been weighted slightly more towards the original equipment side of things, which itself has slightly lower margins than the oil and gas aftermarket trade, Weir did reiterate guidance for mid-teens price increases on that side of the business.
Overall, Credit Suisse upped its target price on Weir to 2,300p from 2,200p while reiterating its 'neutral' stance on the shares.