Shore Capital has moved Weir Group PLC (LSE:WEIR) to 'hold' from 'buy', not because of any weakness in the business, but on valuation grounds following a strong share price rally..
The broker says Weir’s shares now trade at a 6% premium to their five-year average valuation and reflect the group’s improved quality since its exit from oil and gas.
The downgrade comes despite Weir reporting a robust half-year, with operating profit up 17% in constant currency and margins upgraded to 20% for the full year.
The Minerals division led the way, helped by strong mining activity and aftermarket demand, while ESCO also delivered healthy growth.
Management remains positive, pointing to supportive commodity prices and a solid pipeline, but ShoreCap now sees only modest further upside, with a new fair value of 2,750p. With the shares now fairly valued, the broker believes a 'hold' rating is appropriate.
The wider investor community was willing to go with the flow, with the rock-solid update prompting a 2.4% rise in the shares to 2,696p.