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Investing.com -- UBS has outlined three main reasons why it remains positive on Weir (LON:WEIR), emphasizing margin potential as the key driver of its bullish stance, in a note dated Wednesday.
First, UBS said it believes Weir’s margin bridge for the second half of 2025 is conservative.
The brokerage pointed out that the company has assumed a 19% organic drop-through rate, compared with 30% in the first half despite weaker original equipment sales.
It also noted that Weir has forecast £10 million in savings from its Performance Excellence programme, which UBS described as “light” given management’s own commentary that the risks lie to the upside.
UBS’s revised estimates suggest the group could deliver a 20.8% adjusted EBITA margin in 2025, above the 20% company guidance and consensus forecast.
Second, UBS drew comparisons with FLSmidth’s Pumps, Cyclones and Valves business, which has a similar product mix to Weir’s Minerals division but is about one-fifth the size.
Despite its smaller scale, FLSmidth’s division reported higher margins at 24.2% compared with Weir Minerals’ 21.8%.
UBS argued that Weir should ultimately achieve higher margins due to its greater scale and slightly larger aftermarket exposure.
The bank is forecasting a 25.8% margin in the Minerals division by 2027, compared with consensus at 23%.
Third, UBS said it expects Weir to deliver significantly more savings from the Performance Excellence programme than the company’s own target of £80 million.
Its bottom-up analysis indicates potential savings of £125 million, with the additional £45 million equating to about 1.6% of adjusted EBITA margin based on 2026 consensus sales.
UBS flagged Weir’s track record of underpromising and overdelivering on margin targets, reinforcing its confidence in this view.