Sinking gas prices increase shorting of engineer Weir’s stock
04 April 2012 London
Image: Shutterstock
Short sellers are seeking to capitalise on the tumbling price of US gas by shorting stocks in Weir Group, who produce specialist pumps and valves.
The engineer’s stock is now the most shorted in the FTSE 100, with shares worth £21.00 at the start of the year closing at £17.64 on Friday, 30 March.
However, analysts warned that the stock has been mispriced, since the shale gas market makes up less than 50 per cent of Weir’s £2.29 billion revenue.
“It is very naive to think that if activity in the shale gas sector falls, Weir’s profits will automatically fall sharply too. First, because some of the equipment will be redeployed onto oil shale. And second, because the amount of installed capacity has risen, which will give Weir scope to make money from the after-market, which is what earns its best margins anyway,” Michael Blogg of Investec told the FT.
The engineer’s stock is now the most shorted in the FTSE 100, with shares worth £21.00 at the start of the year closing at £17.64 on Friday, 30 March.
However, analysts warned that the stock has been mispriced, since the shale gas market makes up less than 50 per cent of Weir’s £2.29 billion revenue.
“It is very naive to think that if activity in the shale gas sector falls, Weir’s profits will automatically fall sharply too. First, because some of the equipment will be redeployed onto oil shale. And second, because the amount of installed capacity has risen, which will give Weir scope to make money from the after-market, which is what earns its best margins anyway,” Michael Blogg of Investec told the FT.
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