Weir Group PLC (LON:WEIR) was upgraded to ‘buy’ from ‘hold’ by both Deutsche Bank and Shore Capital after selling its oil & gas business on Monday.
The German bank, which raised the target price to 1,960p from 1,200p, said the disposal adds an important catalyst because “many investors really didn't like the oil & gas business and the uncertainty that comes with it”.
READ: Weir Group no longer distracted by volatile oil & gas division, analysts say
The Deutsche analysts said it makes Weir's valuation gap to its peers “very obvious”, which stands out in a consolidating market with two large players with strong balance sheets.
The engineering group will be 80% aftermarket driven and there is potential for mid-single-digit growth and a 16%-17% margin over the cycle.
Shore Capital echoed the positive sentiment, noting that Weir will become a more resilient and higher-quality business focusing on attractive end mining markets underpinned by long-term structural growth drivers and technology, with added balance sheet flexibility.
“This exposes Weir to limited cyclicality (given its resilience in mining and aftermarket exposure) and strengthens its earnings quality and cash generation characteristics,” analysts at the broker said in a note to clients, also raising their target price for Weir shares to 1,865p from 1,750p.
“We believe following the proposed disposal of its O&G division, Weir is well-placed to capitalise on the future opportunities within mining,” they added
Weir shares rose 1% to 1,502.5p on Tuesday morning, having jumped by 16% on Monday.