(Alliance News) - Moody's Investors Service on Tuesday has changed the outlook for engineering company Weir Group PLC to negative from stable, but affirmed the ratings.
The stock was trading 14% higher in London on Tuesday at 900.00 pence a share.
Moody's explained that a shift to negative outlook reflects the fact that Weir's leverage remains outside the range for its Baa3 rating for several years. The ratings agency expects this to likely remain the case for at least 2020, even without taking into account the current macro developments.
Accordingly, there is an increased risk of a downgrade, the ratings agency said.
Looking ahead, Moody's said it believes that Weir's Oil & Gas segment will come under significant further pressure in 2020 with further significant revenue drops and possibly negative earnings before interest, tax, depreciation and amortization margin.
The Minerals and ESCO segments, meanwhile, should be more resilient, Moody's noted, because they are typically less volatile from a revenue and margin perspective.
The affirmation of Weir's ratings, meanwhile, remains supported by its strong market leadership in product niches, Moody's said, good geographical diversification, high profitability in its core mining operations and solid free cash flow generation.
Moody's explained that the main constraints for the ratings are Weir's modest scale in terms of revenue and somewhat narrower product portfolio than that of similarly rated peers.
Moody's said it would consider stabilising the outlook if Weir can achieve metrics commensurate with the Baa3 rating in an appropriate time horizon.
Although unlikely in the context of the current negative outlook, Moody's said it would consider positive pressure on the rating if Weir improves its capital structure.
By Evelina Grecenko; evelinagrecenko@alliancenews.com
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Weir Group (WEIR)