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Weir hit by UBS downgrade ahead of tough year

The broker said the global mining sector is suffering low raw material prices and tough comparative in an uncertain macroeconomic scenario

HSBC - UBS downgrades Weir Group to ‘neutral’
HSBC also cut Weir’s price target from 1,870p to 1,820p, but retained the ‘buy’ recommendation

Weir Group PLC (LON:WEIR) has been downgraded by UBS as the global mining sector, on which the engineer is heavily reliant, is suffering low raw material prices and tough comparatives in an uncertain macroeconomic scenario.

These combined factors are leading to a slowdown in capital expenditure growth on projects where the FTSE 250 group will be needed.

READ: Weir Group shares pump higher as it secures biggest ever order worth £100mln

UBS cut the shares to ‘neutral’ from ‘buy’, cutting the price target from 1,550p to 1,450p.

Forecast 2020 minerals revenue was cut by 6% to £1.5bn. Its 2020 revenue is now expected to be £593mln, down 5% from previous estimates.

2020 is expected to see some weakness in underlying profit (EBITDA) but then it is forecast to grow at an annual compound rate of 8% to 2022, driven by “robust” growth in the minerals market due to maintenance investments and greenfield expansion.

After that, the oil and gas business will also pick up as US onshore capital expenditure intensifies, UBS reckons.Overall revenue, underlying earnings and earnings per share were revised down by 4%, 5% and 6% respectively, to £2.8bn, £398mln and 98p.

The Scotland-based group is still well balanced in terms of risk, UBS felt, on the back of a “strong” pipeline of original equipment opportunities and the recent £100mln order for a magnetite iron ore project in Australia, its biggest one so far.

HSBC also cut Weir’s price target from 1,870p to 1,820p, but retained the ‘buy’ recommendation.

Shares fell 2% in early trading on Thursday but were back to flattish at 1,408.5p by late morning.

Quick facts: HSBC

Price: 569.9 GBX

LSE:HSBA
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Market Cap: £115.44 billion
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