Canaccord lifts rating and target price on Weir Group

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.