Cannacord cuts Weir Group target due to extended weakness in oil and gas sector
By Alexander Bueso
Date: Friday 15 Nov 2019
(Sharecast News) - Analysts at Cannacord Genuity cut their target price on shares of Weir Group to reflect to reflect a now more sombre outlook for only a "modest recovery over an extended period" in the company's oil and gas operations.
The Canadian broker cut its estimates for Weir's earnings in 2019 and 2020 by 16.0% and 19.0%, reducing their target for the stock from 1,800.0p to 1,600.0p in the process.
"This is in line with the experience of many other operators in the [oil and gas] industry, which is struggling with unexpected financing challenges amid profit warnings and insolvencies across the supply chain," analyst Alex Brooks said in a research note sent to clients.
"We now see only a modest recovery in this sector over an extended period, reflecting an increasing capital markets doubt over the long-term growth potential in oil & gas broadly."
"Weir enjoys industry-leading market positions built on consumables and sustainable, through-cycle profitability. None of these three factors can be asserted for its oil & gas business without heavy qualification," Brooks added.
Furthermore, the "notable" decline seen in the company's free cash flows meant that Brooks's debt forecasts were now higher as well.
Nonetheless, the analyst expected synergies from the recent acquisition of ESCO to start feeding through and the group's investment in technology to start delivering "more substantial" payoffs over the next two to three years.
"We continue to believe the reward for these risks is attractive," said the analyst, who kept his recommendation for the shares unchanged at a 'buy'.
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