Pumps manufacturer Weir Group PLC (LON:WEIR) has been downgraded by broker Liberum Capital due to “limited upside” as the recent oil price level and volatility “make second-half upgrades unlikely”.
The broker cut its recommendation to ‘hold’ from ‘buy’ and reduced its target price to 1,650p from 1,800p.
READ: Weir Group falls as weak oil and gas markets hit first-quarter orders
Increases in US onshore capex budgets are likely to be deterred in coming months by the two 20%-plus oil price sell-offs in the last nine months.
“For shale operators to increase spending, there has to be a degree of confidence in the oil price,” Liberum's analysts said in a note to clients on Friday, adding that such confidence “seems unlikely” given oil’s rollercoaster ride of late.
“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 US$60.”
With the City forecast consensus in the middle of the £55mln-£95mln guided profit range, and the current oil price in the middle of the assumed $50-60 range, Liberum sees “limited room for earnings upgrades in oil & gas this year”.
As a result, it is bringing its estimates for Weir back in line with consensus leading to the downgrade.