RBC said this week Weir's oil and gas sector exit - "our SOTP [sum-of-the-parts] at 1,679p values Weir Oil & Gas at £148m based on circa 75% discount to book value" - implied an enterprise value/EBITA for Weir's dominant mining business of 13-14-times its FY21 projected earnings.
Swedish peer Epiroc was trading at 20-times FY21 earnings.
"Our SOTP assumes Weir Minerals trades at a 16.7-times EBITA.
"If you value Weir's mining businesses in line with Epiroc, the implied valuation is over £20 per share [versus the current £14.83]. Weir Minerals has the most stable margin track record in the European mining equipment sector and, in our view, is in a similar quality bracket to Epiroc," RBC said.
The bank said Weir's sale cut pro forma net debt to EBITDA at the end of the first half this year to 1.9-times, versus the 2.6-times actual half-year number.
Meanwhile, Caterpillar's acquisition will marry Weir's Texas-based pumps, flow iron, consumable parts, wellhead and pressure control products and servicing business with the US machinery giant's engines and transmissions capabilities.
The transaction includes more than 40 Weir Oil & Gas manufacturing and services locations and about 2,000 employees.
Caterpillar said the acquisition was consistent with its strategy to invest for long-term, profitable growth.
Morgan Stanley & Co is serving as Caterpillar's financial advisor for the transaction, which is expected to close by year-end.