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Broker views: Pumps and electricals

25 August 2017 13:57

Equity analysts at Peel Hunt have upgraded their recommendation on Weir Group (LON:WEIR) to buy (from hold) saying they are "turning more positive" after running a series of valuation scenarios in respect of the pump manufacturer.

"The key factors are the 1.12 and 1.13 book-to-bill ratios in Minerals and Oil & Gas, respectively, which underpin improving momentum, the much improved cash flow which will take current year leverage of 2x to just 1x by the end of 2019 and our view that the current valuation does not fully reflect these compelling dynamics," the broker explained in a note to clients.

Target price increased to £21 from £20.

Elsewhere, HSBC has downgraded its investment rating on Dixons Carphone (LON:DC.) to hold (from buy) believing there is too much uncertainty to justify a continued positive view on the stock.

The bank summarised the key issues going forward as being: "Credibility given such a large downgrade comes so soon after FY results; whether mobile issues are cyclical or structural; with the investment case now resting on the electricals business DC becomes more sensitive to the UK consumer outlook."

Analysts cut their forecasts by 20-30%, which they highlighted was at the low end of guidance.

HSBC's target has been slashed to 200 pence per share (from 410 pence), implying just over 10% potential upside.

Separately, Barclays Capital maintained its overweight rating on the stock and lowered its price target to £2.31.

"Overall, while this announcement, combined with complicated and sometimes opaque accounting, will undoubtedly be of concern to investors, we believe that the shares are close to pricing in the worst case scenario," Barclays commented.

At 1:55pm:

(LON:DC.) Dixons Carphone share price was +5.1p at 185.9p

(LON:WEIR) Weir Group PLC share price was +30.5p at 1819.5p

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