Weir Group PLC (LSE:WEIR) investors have three key reasons to be optimistic on the company’s profit outlook, said UBS as it reaffirmed its 'buy' rating.
First, the Swiss bank believes the FTSE 100 engineer is set to outperform its own guidance for 20% adjusted EBITA margin in 2025 as it sees this based on two conservative assumptions.
Second, peer analysis strengthens the case. UBS pointed to FLSmidth’s recent divisional reporting, which shows its equivalent business to Weir’s Minerals division has achieved a 24.2% margin, despite being around one-fifth the size.
Weir, it is argued, should be capable of surpassing this, noting its superior scale and after-market mix, supporting its forecast for a 25.8% margin in the Minerals division by 2027.
Lastly, the bank's analysts see material upside from the group’s cost savings initiative. “We forecast £125 million of cost savings from the Performance Excellence programme, compared with current guidance of £80 million,” they wrote, equating the difference to a potential 1.6 percentage point uplift in margin.
The valuation remains attractive, the analysts added, with Weir trading at 12.4x on a forward EV/EBIT basis compared to the peer average of 15.1x.
EPS growth is forecast to average 17.3% annually from 2025 to 2027, best-in-class in the sector, and Weir is expected to reach a 23.3% group EBITA margin by the end of that period.