Weir Group Plc, the world’s largest maker of pumps for miners, dropped as Berenberg Bank cut its recommendation after the shares reached the highest price in at least 23 years high on prospects for fracking equipment.
The shares fell 4.4 percent, the biggest drop since May, to 2,325 pence, paring the gain this year to 24 percent. The volume of shares traded exceeded the three-month daily average by more than 79 percent. It was the third-worst retreat in the FTSE 100 Index today.
“The year-to-date performance and the recovery in valuation leave us struggling to see significant upside to the current share price,” Alex Virgo, an analyst at Berenberg Bank, said in a note cutting his recommendation to hold from buy. Some analysts are more skeptical than investors about Weir’s ability to maintain margins in its oil and gas unit, said Virgo, who didn’t reduce his margin estimates.
Weir is the largest supplier of hydraulic fracturing equipment in the oil industry and said last year it expected the fracking market to double by 2015. The expansion of fracking has driven U.S. gas prices about 60 percent lower in five years, affecting Weir’s oil and gas unit. The shares are being shorted because investors think oversupply of equipment for fracking means Weir’s margins aren’t sustainable, Virgo said by phone.
Short sellers sell borrowed stock in the hope of buying it back at a lower price in the future and making a profit.
Shares of the Glasgow, Scotland-based company climbed 62 percent from the end of June last year to 2,474 pence on March 11, the highest since at least 1989. Almost 15 percent of the shares were being shorted as of March 15, the most in the FTSE 100 Index, according to Markit data.
The shares may see technical support as short sellers continue to reduce their positions, said Virgo, who raised his 12-month price target 7.2 percent to 2,552 pence. Berenberg lowered its earnings per share estimates for Weir for this year and next by more than 3 percent.