Broker tips: Vesuvius, Royal Dutch Shell, Weir
Broker Panmure Gordon warned that FTSE 250-listed Vesuvius is likely to be hit by the same industry pressures as German rival SGL Carbon, which issued a profit warning on Tuesday.
SGL Carbon warned that, despite its cost-cutting efforts, it expects group profit to decline significantly in 2016 due to renewed pressure on prices in the graphite electrode market.
"It appears that steel customers are starting to reduce and/or postpone their demand for graphite electrodes already for first quarter of 2016," Panmure said.
Analysts expect Vesuvius to face similar pressures, particularly from its US and European customers, some of whom are having to close plants.
Panmure believes the consensus EPS forecast of 30.6p and 31.2p for 2015 and 2016 remains "too high" and expects pressure on revenues and margins particularly in 2016.
Charles Stanley reiterated its ‘accumulate’ rating on Royal Dutch Shell on Wednesday after the company said it expects increased synergies from its £40bn deal to buy BG.
Shell on Tuesday said its estimates of pre-tax synergies from the deal had risen 40% to $3.5bn by 2018.
The group also reiterated that the proposed deal with BG Group should boost cash flow, reduce debt, and improve Shell’s capacity to pay dividends and deliver share buybacks.
"After disappointing third quarter results, the share price has underperformed the peer group and a valuation discount appears to have been created," said Charles Stanley analyst Tony Shepard.
"With the high dividend yield and potential long-term growth for the combined Group, we maintain our ‘accumulate’ recommendation."
Weir got a boost after RBC Capital Markets upgraded its stance on the stock to ‘sector perform’ from ‘underperform’ and lifted the price target to 1,200p from 1,150p.
“We believe the risk/reward at Weir is now reasonably balanced, with the shares valued at close to 14x trough earnings,” it said.
The bank said concerns over price-downs in the minerals division may have been overdone and it expects to see the trading performance of the oil and gas business bottom soon.
“It remains difficult to forecast recovery, but when it comes, strong sales growth and high operational gearing will likely result in future earnings higher than our 2017 forecast of 98p.”
RBC said Weir's end-market exposure offers potential for structural growth medium-term and its historical above average return on sales and invested capital is sustainable.