Liberum downgrades Weir, cites limited upside in oil & gas

Liberum downgraded its stance on Weir to 'hold' from 'buy' on Friday, cutting the price target to 1,650p from 1,800p as it pointed to limited upside in oil and gas.

The broker said both the oil price level and recent volatility make upgrades in the second half of the year unlikely.

It said two selloffs of more than 20% in the oil price in the last nine months will likely deter increases in US onshore capex budgets, even if we see higher oil prices.

It pointed out that West Texas Intermediate crude prices fell 23% in seven weeks between April and early June, just a few months after the oil price dropped 44% at the end of 2018.

"For shale operators to increase spending, there has to be a degree of confidence in the oil price," it said.

"With such a volatile backdrop, it is unlikely shale operators will have the confidence to increase capex budgets in the near future even if the oil price continues to recover towards $60."

Liberum said that with consensus for Weir in the middle of the £55m-£95m guided profit range, and the current oil price in the middle of the assumed $50-60 range, there is limited room for earnings upgrades in oil & gas this year.

At 1315 BST, the shares were down 0.6% at 1,518.50p.