A trading statement from Glasgow-headquartered engineer Weir (WEIR) suggests the downturn in US shale activity could be more damaging than the market thought. It drops 2.5% to £18.74, a fall which is nearly matched at oil services counterpart Hunting (HTG) off 2.1% to 599.7p. Weir is a big supplier of equipment such as valves, pumps and compressors to shale operators in North America while Hunting also has significant exposure here.
This update is released ahead of today’s capital markets day. It notes that its oil and gas related business continued to experience a ‘sequential decline’ in activity during April and May with divisional order intake down 34% year-on-year in the first five months of 2015 as a whole. This compares with the 23% decline reported for the January to March period.
In response Panmure Gordon, which has a sell recommendation on Weir and a £13.30 price target, cuts its forecast for oil and gas revenues by 10% to £695 million. Liberum is also a seller with a marginally less bearish £14.50 price target although it concedes that M&A is a risk to its negative view. Commenting that: ‘A takeover by a US leviathan is a threat to our recommendation.’
Looking ahead to first half numbers from Hunting, due 27 August, Deutsche Bank writes that ‘with US rig counts still falling (down 60% vs. peak) sequential decline in orders/revenue is no surprise but the scale of the decline seems to be more than some had anticipated with evidence that the steeper drop in more service intensive horizontal activity combined with delayed completions and severe pricing pressure have hurt more than originally thought.’