Weir Group PLC’s (LON:WEIR) acquisition of ESCO and its intention to get shot of its Flow Control business has prompted a rethink at UBS.
The Swiss bank got off the fence and upgraded the stock to ‘buy’ and increased its target price to 2,500p from 2,170p.
READ: Weir to cut ties with industrial pumps as it focuses on oil and mining
Henceforth, the business will be largely focused on minerals, with this business line generating two-thirds of its operating profit.
Having rejigged its spreadsheet model to take into account the refashioning of the company, UBS now expects Weir’s earnings before interest, tax and amortisation (Ebita) to grow at a compound annual growth rate (CAGR) of 18% between the years 2017 and 2022, compared to its previous forecast of a CAGR of 8%.
UBS said that sort of growth rate puts the company on par with its minerals and oil & gas peers but, in its view, Weir’s valuation is “significantly more attractive”.
The stock is trading at an average 27% discount to its peers on its projected price/earnings multiple for 2019 and its enterprise value/Ebit ratio.
“With the macro backdrop supportive, we think Weir Group’s businesses are still at the beginning of a multi-year expansion cycle supportive of growth and upgrades, and we would expect the valuation gap to close,” UBS said.
Shares in Weir were up 2.4% at 1,944.5p in late-morning trading.