Weir Group's shares fall as Canaccord cuts rating to 'sell' from 'hold'

Weir Group’s shares were under pressure on Wednesday after Canaccord Genuity downgraded its rating on the stock to ‘sell’ from ‘hold’ and cut its price target to 880p from 940p.

Canaccord said it was lowering its earnings per share forecasts for 2016, 2017 and 2018, ahead of the engineering group’s trading update on Thursday.

“We are putting in a cut of 16.9% to 54.7p for 2016 with a reduction of 7.8% for 2017 to make 65.0p and our initial forecast for 2018 is 75.8p,” said Canaccord analyst Harry Phllips.

“These compare to Weir’s own derived consensus of 62.3p and 70.9p for 2016 and 2017, respectively.”

Weir is expecting a significant reduction in 2016 revenue at its oil and gas division due to lower crude prices. The minerals business is expected to show a slight decline in revenue in constant currency. Overall, the group predicts flat revenue and operating margins.

Canaccord has pencilled in full year sales of £1.7bn, down from £1.9bn the previous year.

“Despite considerable action on the cost base, including £45m to come from the full-year benefits from action taking in 2015 and £40m additional cost savings identified for 2016, we still see some potential downside risk to current year numbers particularly in oil and gas," said Phillips.

"Last week’s rig count of 431 is 39.6% lower than the average for December 2015 and shows little sign of improving. In its Q1 results on 21 April, (oil services company) Schlumberger stated that the industry displayed 'clear signs of operating in a full-scale cash crisis' and that the environment is 'expected to continue deteriorating through the coming quarter'.

Shares in Weir fell 3.8% to 1,113p at 1057 BST.