Oil services provider Weir Group plc (WEIGY) led the U.K. market higher Monday July 17 after upgrading its margin expectations on the back of stronger than expected demand from U.S. fracking fields.
Weir shares traded up as much as 10% on Monday morning before falling back slightly to 1,983 pence ($25.99), or 8.7% higher than their Friday close. Weir stock has gained almost 29% over the past 12 months.
"Higher levels of frack fleet utilization and significant tightening of industry capacity are both benefiting the Group's Oil & Gas division," Weir said in a trading statement. "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."
Weir's spike on Monday morning suggests that a long-awaited recovery in oil services earnings may finally be gaining steam following years of belt tightening by oil producers that has fed through to lower margins and sales for the businesses that provide and service their production infrastructure.
"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," said Weir.
Weir's Oil & Gas unit delivered margins in the low teens over the first half of 2017, compared to a consensus expectation of 10%, according to Goldman Sachs. "We estimate this implies a full year margin of c.12% vs consensus at 8%," noted analysts Jonathan Hanks and Daniela Cost.
U.S. shale producers have added almost 450 new rigs, up about 142%, since the rig count bottomed in May 27. The rate of new additions has slowed in recent weeks, with only two new rigs added last week, as oil prices dropped back toward $45 a barrel.
Weir will publish its interim results on July 27.