Morgan Stanley upgrades Weir, sees higher capex from miners

Morgan Stanley upgraded its recommendation on Weir Group, telling clients the mining cycle was stabilising and that miners´ ability to spend was set to improve, with capital expenditures on replacement described as a "sweet spot".

Combined with forecasts for an inflection in the rig count in 2017 and 2018 the broker´s estimates for earnings per share at Weir were now 11% and 33% ahead of consensus, respectively.

"Miners'ability to fund capex – set to improve: At spot rates (and MSe base case forecasts) miner post-dividend cash flows are on track to be positive in 2016 for the first time in 4 years and will be close to peak levels in 2019/20, leaving scope to raise dividends and/or investment in growth (ie capex). We believe this sets the scene for a sustained earnings recovery in mining equipmentnames," analysts Robert J Davies and Ben Uglow said in a research report published on 6 September at 2003 BST.

The broker upgraded its view from 'equalweight' to 'overweight' while maintaining its target price of 2,000p.