ShoreCap hails Weir Group's decision to sell oil and gas unit, upgrades to 'hold'

Weir's other main businesses, aside from Oil & Gas, are its Mining division and its ESCO unit, the world leader in ground engaging tools.

In a research note sent to clients, they said: "Given our concerns over the cyclicality of O&G and now managements addressing the issue with the 'intention to maximise value', we believe now taking a long-term/neutral view is justified."

They also revised their target price for the shares from 1,320.0p to 1,500.0p, using a range for the shares' price-to-earnings ratio of 14.5-16.5 based on their estimates for the company's adjusted 2021 earnings per share.

That included a 10% mark down of its 2020 EPS estimates for the group from 93.9p to 84.1p given the "more challenging O&G market than previously expected", including the impact of the COVID'-19 virus, whereas Weir's guidance had assumed that "underlying demand does not change".

"The O&G tangible asset value of £435m provides a starting point for valuation of the business, but we note that this is based current market conditions," they added.

Alongside its full-year numbers published on 27 February, Weir had announced a £546m impairment charge, worth roughly 43% of the O&G unit's 2018 asset value.

"Given the current limited visibility in O&G, we expect Weir to follow a medium to long-term disposal plan awaiting improvement in market conditions for the business, thus likely to deliver an acceptable valuation to facilitate the Group’s future development and deleverage."