No recommendation
No news or research item is a personal recommendation to deal. Hargreaves Lansdown may not share ShareCast's (powered by Digital Look) views.
(Sharecast News) - Weir Group shot higher on Thursday after UBS upgraded the shares to 'buy' from 'neutral' and hiked the price target to 2,850p from 2,250p.
The bank said its new 'buy' thesis is driven mostly by its view that there is significant upside to the savings that Weir can achieve from its Performance Excellence plan.
"However, we also think Weir is the best protected amongst peers in the event of a downturn following recent tariffs," it added.
UBS noted that Weir has built up a track record for under promising and overdelivering. It pointed out that since the Performance Excellence programme was announced in September 2022, the cost savings guidance has been increased twice.
The initial target was 30m. This was then revised up to 60m in 2023 and 80m in 2024.
"We think Weir can generate significantly more cost savings than guided," UBS said.
Using bottom up analysis, UBS estimated that Weir can generate 125m of savings from its Performance Excellence programme versus guidance of 80m by the end of 2026.
The additional 45m is equivalent to an incremental +1.6% adjusted EBITA margin in 2026.
"We estimate an adjusted EBITA margin of 23.4% in 2026, which is significantly above consensus at 20.4%," UBS said.
The bank thinks the market is currently pricing in 80m of cost savings.
"What's driving our above guidance estimates? We have performed bottom up analysis on Weir's cost savings programme to formulate a total savings estimate.
"The key sources of difference versus guidance come from 1) Weir Business Services, where we estimate that Weir can deliver 55m savings versus guidance of 20m, and 2) 40m of savings from capacity optimisation versus guidance of 30m."
In its upside scenario, UBS sees scope for 200m of savings from the programme.
The bank said that overall, it thinks the impact from tariffs will potentially be limited.
"Even in a worst case scenario, we calculate (based on our assumptions) that Weir's idiosyncratic cost savings programme is likely large enough for Weir to deliver consensus earnings in 2026."
At 0935 BST, the shares were up 3.3% at 2,386p.