Weir climbs on hopes over shale gas recovery

Pumpmaker Weir Group hit a two-year high on Tuesday after JPMorgan Cazenove said that investors had underestimated the strength of the shale gas recovery.

JPMorgan upgraded Weir to “overweight” with a £21.75 target price. The shares have been among the engineering sector’s weakest performers this year in spite of evidence from peers such as Dover and Sandvik that demand is recovering more swiftly than expected, the broker told clients.

Weir has cut costs aggressively for the past two years, so has operational leverage into a higher US rig count and increased spending by oil explorers, JPMorgan said.

Its base case was for group earnings to far outpace peers, growing 82 per cent from 2016’s cyclical low to the end of next year, even without a recovery in pricing.

Weir closed 3.8 per cent higher at £20.80 in a mixed wider market. The FTSE 100 ended up 10.96 points, or 0.2 per cent, at 7,275.64.

Whitbread led a slide among the consumer exposed stocks, losing 7.1 per cent to £40, after reporting weak sales and margins at its Costa Coffee shops because of a more challenging outlook.

Kingfisher was down 3.2 per cent to 326.4p, Next lost 1.2 per cent to £42.72 and Primark owner AB Foods eased 2.2 per cent to £28.15.

Retailer Carpetright, down 8.1 per cent to 225.3p, also blamed a more tricky consumer environment as it cut profit guidance to the lower end of market expectations.

Inhaler maker Vectura faded 1.8 per cent to 140p on a second broker downgrade in as many days. RBC cut the stock to “underperform” and pushed back launch timelines for several of its pipeline drugs.

Hikma Pharmaceuticals, Vectura’s partner for a generic asthma treatment that could win US approval next month, rose 3.4 per cent to £19.05 after non-executive director Nina Henderson bought 3,500 shares.

Carillion, the London market’s third most-shorted stock, gained 2.9 per cent to 222.5p after JPMorgan turned positive in a review of the UK construction services sector.

Political uncertainty means infrastructure activity is in a short-term lull so investors should favour exposure to services-oriented spending and lower-value construction work, JPMorgan said.

The broker also rejected longstanding concerns about Carillion’s earnings quality, saying that there was nothing amiss with its use of supply chain financing, and seeing no convincing evidence that it has been over-earning versus peers.

Sandwich maker Greencore tumbled 7.2 per cent to 227.8p on competition worries after Tyson Foods said it was buying AdvancePierre, a rival of Greencore’s recently acquired US business Peacock Foods.