UBS upgrades VAT Group to “buy” as order recovery and stronger FCF lift outlook

Investing.com -- UBS upgraded VAT Group AG (SIX:VACN) to”buy” from “neutral,” raising its price target to CHF380 from CHF285 after increasing its 2026-27 equity free cash flow by 4-6% and lifting its medium-term sales and margin assumptions. 

The brokerage said it now models 10% medium-term DCF sales growth, up 200 basis points, and a 34% EBITDA margin, up 100 basis points, citing higher expected sales volumes.

The upgrade follows two years in which VAT’s shares lagged the Swiss index amid muted order trends. 

UBS said it expects a positive order inflection in the first half of 2026, projecting Q2 2026 orders of about CHF300 million compared with CHF240 million in Q4 2025, an increase of more than 20%.

UBS forecasts 2026 global semiconductor wafer-fab equipment capex rising 8% year over year to a record $117 billion, with memory spending, VAT’s most relevant segment, expected to grow more than 20%. 

The brokerage cited rising DRAM and NAND prices as supportive indicators and said recent AI data-center announcements provide “granularity” to the industry outlook.

AI data centers already account for about 20% of WFE capex, a share UBS said could rise above 40% by 2030 depending on capacity expansion.

VAT’s exposure to semiconductors is significant, with UBS estimating 80% of 2025 sales coming from the sector. 

The brokerage said VAT holds an estimated 70% global market share in vacuum valves, more than 10 times its closest peer, supported by customer design wins. 

UBS also expects adjacencies, including pin lifters, advanced modules and upstream valves, to add CHF100-200 million, or 10-15% of group sales, over the next few years.

UBS forecasts VAT revenues rising 16% in 2026 and 11.5% in 2027, with EBITDA increasing to CHF398 million in 2026 from CHF318 million in 2025. 

It projects EPS of CHF9.60 in 2026, CHF10.94 in 2027, and a 2025-28 EPS CAGR of about 20%, noting that the stock trades at 32x 2026 earnings and 28x 2027 earnings, below its historical 35x average.

VAT continues to show what UBS described as “best-in-class” cash generation, with equity free cash flow at about 20% of sales and FCF ROIC above 40%. 

Its balance sheet is also forecast to strengthen, with net debt expected to shift to CHF43 million in cash in 2027 and CHF149 million in 2028, compared with CHF85 million net debt in 2025.

UBS cited China as a key risk. It estimates 35% of VAT’s revenue and 45% of earnings come from Chinese semiconductor equipment makers and noted that inventories at those customers may cover up to 12 months of valves. 

The brokerage also warned that local competitors could gain share if they match VAT’s technology.