HSBC downgrades Weir as oil and gas markets deteriorate

HSBC downgraded Weir to ‘reduce’ from ‘hold’ and slashed the price target to 1,000p from 1,300p after what it saw as a further deterioration in conditions in oil and gas markets.

It also pointed to a strong decline in aftermarket order intake and low oil prices taking a toll on the power and industrial business division.

The bank said Weir faced headwinds in all three divisions.

In Minerals, customers were responding to weak commodity prices by closing mines and postponing scheduled maintenance pose a risk to mining aftermarket revenue in future.

HSBC noted that in the third quarter, both upstream operations – Pressure Pumping and Pressure Control – saw low double-digit sequential order declines with pressure pumping order levels falling below 2009 lows, indicating further deteriorating conditions in oil & gas end-markets.

“We believe Weir’s increased targeted cost-saving run-rate of £110m (versus £85m previously) every year is not enough as it faces strong headwinds in its margins in mining and oil & gas amid significant pricing pressure,” analysts added.

At 1454 GMT, Weir shares were down 2% at 1,178p.