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Brokers: Weir leads parade of downgrades

Published: 22:27 06 Nov 2015 AEDT

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Downgrades o’clock today led by Citigroup, which put its hand up and admitted it was too early in calling a recovery at troubled oilfield services group Weir (LON:WEIR).

The broker had expected a turn in the US shale business, which it says is not happening.

US rig count, a standard measurement of activity in the oil business, is expected to be lower year-on-year on average in 2016 with a recovery now postponed until 2017.

That makes Weir’s earnings vulnerable in the next 6-12 months and with its rating already reflecting some recovery it’s hard to be constructive on the stock, said Citi.

The broker’s rating is downgraded to neutral with a new target price of 1,200p.

Another oil services group in trouble is Amec Foster Wheeler (LON:AMFW) and UBS has downgraded to ‘neutral’.

The decision to cut the final 2016 dividend was an indication that weak conditions would linger for longer than expected, said the broker, even though Amec's end markets are quite diversified with only around 60% exposed to oil & gas and mining.

Engineer Cobham (LON:COB) has also been downgraded, this time by Deutsche Bank, which has cut both its earnings estimates and target price after the company gave no guidance for 2016. On 12 times underlying earnings there is little reason to buy the shares says the broker. Hold.

National Grid (LON:NG.) is yet another downgrade where Jefferies says the recent share price outperformance is plenty enough. Hold from buy is now the view despite a raised target price of 950p.

Even so, Jefferies expects the Grid will outperform against its current regulation in the UK and offer a secure and growing dividend to investors.

An upgrade at last and it’s for online betting group Betfair (LON:BET) and it comes from Numis.

Now with Paddy Power as part of the group, the broker sees even greater scope to outrun its rivals.

“Paddy Power Betfair will, we forecast, have total revenues of £1.2bn and online revenues of over £1bn, second only to bet365 in online.”

Use of technology will also be key. “Betty will be able to invest in innovation and harvest the rewards across the enlarged customer base.”

Liberum’s retail team has kept its rating on Pets at Home (LON:PETS)  at buy and price target at 350p even though it has cut EPS forecasts by 5-8%.

Its case is based on the company's long-term growth potential, underpinned by a transition to less capital intensive growth.

Debenhams (LON:DEB) does not fare so well and is a sell after full year results showed sales growth of just 1.1% in what was a buoyant year for the UK consumer.

Online leads the Debenhams growth strategy but the online customer service ‘arms race’ could weigh on margins, which have already been rebased by recession and the rise of online.

AstraZeneca’s (LON:AZN) acquisition of ZS Pharma for $2.7bn in cash gets plaudits from Deutsche Bank, adding it "makes clear strategic sense to us".

“The deal will leverage Astra’s existing presence in cardiovascular and metabolic disease and will enable it to accelerate its plans to build a nephrology presence around pipeline drug roxadustat (for anaemia).”

Down a level, finncap is keen on Acal’s (LON:ACL) acquisition of Flux AS for £3.7mln. Flux designs and manufactures customised magnetic components for high spec industrial and space grade applications.

Its capability adds to Acal’s existing product and service range and there is strong potential to sell into the group’s existing customer base.

"Acal is building a business focused on increasingly high value-add activities capable of producing very attractive GDP plus growth alongside rising margins," said the broker.

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