Canaccord lifts rating and target price on Weir Group

Weir Group shares gained on Tuesday after Canaccord Genuity raised its rating on the stock to ‘hold’ from ‘sell’ and its target price to 1,200p from 800p.

Canaccord said given the rally in Weir’s US peers, it believes the valuation for the UK oil and gas-focused engineering company is “likely to stay extended even if the fundamental case is difficult to see”.

“The stock has in any case almost always traded at a premium to European oil services peers, in part because of its greater flexibility through downturns.”

The analyst said Weir has a long track record of cash generation through good and bad times so it is hard to argue that the company should trade at a large discount to its peers in North America which are showing a notable increase in share prices. Schlumberger, Halliburton and National Oilwell Varco are among the US peers.

However, Canaccord said Weir is 25% exposed to the oil and gas sector, which has suffered a slump in crude prices amid a global supply glut.

“We continue to believe that fundamental over-capacity issues are likely to cap any recovery in pricing for the oil and gas supply chain for an extended period, even if volume recovers: and the capital expenditure outlook for the diversified majors in the sector strongly suggests there remains some way to go before this inventory is worked through.”

Shares rose 3.48% to 1,309p at 1047 BST.