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Investing.com -- S&P Global Ratings has revised the outlook for Weir Group PLC (OTC:WEGRY) to stable from positive due to the company’s planned debt-funded acquisition of Micromine, an Australian mining software solutions provider. The acquisition, valued at AU$1,310 million (£657 million), is expected to be initially financed with a bridge facility before being replaced by longer-term financing.
The acquisition will likely result in a deterioration of Weir Group (LON:WEIR)’s key credit metrics. S&P Global Ratings anticipates that debt to EBITDA will increase to about 2.4x in 2025, a significant rise from the previous expectation of 1.2x. Additionally, funds from operations (FFO) to debt is projected to decline to roughly 28%-30%, a decrease from the previous expectation of around 60%.
Despite a decline in sales in 2024 due to a slowdown in global mining activity, Weir Group’s sales are projected to increase by about 6%-8% in 2025. This increase takes into account the integration of Micromine and is expected to result in adjusted EBITDA margins rising to about 21.0%-22.2%.
S&P Global Ratings has affirmed Weir Group’s ’BBB-/A-3’ long- and short-term issuer credit ratings, as well as the ’BBB-’ issue rating on the group’s senior unsecured notes and ’A-3’ issue rating on the group’s commercial paper. The stable outlook reflects the belief that despite an increase in leverage in 2025 due to the debt-funded acquisition, the group will reduce leverage in 2026 through strong free cash flow generation and return quickly to its financial policy target range of 0.5x-1.5x reported net debt to EBITDA.
Weir Group’s acquisition of Micromine is expected to increase the company’s debt to more than £1.3 billion at the end of 2025, a substantial increase from £636 million at the end of 2024. However, this rise in gross debt is expected to be partially offset by strong cash generation, and Micromine is anticipated to support Weir Group’s already robust cash generation.
Micromine is expected to complement Weir Group’s existing business, expanding its digital offering across the mining value chain, including exploration, design, and planning. Micromine provides software solutions to the mining and exploration industry and operates in 18 of the world’s leading mining locations.
Despite some headwinds from reduced mining activity, robust growth is expected in 2025, with revenue projected to rise to £2,680 million-£2,720 million from £2,505 million in 2024. This growth will be driven by a solid order intake in the second half of 2024, particularly in the aftermarket segment of the minerals division.
Despite the increase in debt to EBITDA as a result of the acquisition, Weir Group is expected to maintain its policy of keeping net debt to EBITDA at 0.5x-1.5x, with a buffer of up to 2.0x for M&A. The group is also expected to continue to target a dividend payout policy of 33% of earnings per share.
Weir Group is expected to generate about £270 million-£310 million of free operating cash flow (FOCF) in 2025, following 2024’s £334 million. Micromine, which operates at near 100% cash conversion, is expected to contribute to this robust FOCF.
The acquisition of Micromine, expected to close in the second quarter of 2025, will be funded by an Australian dollar-denominated bridge facility, which is expected to be replaced eventually by a mixture of term loans and bonds. Micromine will be acquired debt-free and had AU$12 million of cash on balance sheet as of year-end 2024.
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