why is BTG betting on a 75% rally for the stock? By SpaceMoney


© Reuters Weg (WEGE3): why is BTG betting on a 75% jump for the stock? Look!

BTG Pactual (SA:) released a report yesterday (20) with an assessment of Weg’s shares. Although it has covered the company’s shares for years, the bank has never rated the shares with a buy recommendation. Now, analysts explain that the growing aversion to risk in global equities forces investors to seek defensive companies around the world.

The same happens with Weg (SA:). According to the report, the global market will continue to decline, Weg’s current valuation levels (2023 P/E of 21.9x) and a crisis-proof business model (5-year historical ROIC > 20% ) support the review.

With that, the buy recommendation was accompanied by a new projection of R$ 40.00 for the action at the end of this year – which implies a potential of 75%.

BTG claims that Weg’s business model brings:

(i) a perennial cycle of product evolution, production verticalization and increased competitiveness;

(ii) product flexibility, as electric motors are used in many industrial processes, and Weg’s industrial system minimizes the need for capital;

(iii) manufacturing customization gives the company exposure to several enduring trends in the sector, such as energy efficiency and electric mobility, and reinforces its commitment to ESG.

Other evidence supports the maintenance of healthy growth and margins, according to BTG:

(i) start-up of operations in other promising regions (eg India and Turkey) should sustain continued growth in the foreign market; and

(ii) better utilization of industrial plants (occupancy rate higher than pre-pandemic volumes).

The main reason for the former neutral rating was Weg’s exaggerated premium over global peers, the bank says.

After dropping 28% year-to-date, this premium has shrunk to a 5-year all-time low, which provides a good entry point.

“When we think of a company to buy and hold for the long term, regardless of price, we usually think of Weg – a view often overshadowed by a rich valuation. Today, valuation is no longer a problem for us”, says BTG.

Fall hazards include:

(1) significant volatility in commodity prices, which may compromise margins until full pass-through is reached;

(2) shortage of technical and managerial staff that would delay international expansion; and

(3) a continued deterioration of global industrial production, which leads to a more difficult competitive landscape.

Positive risks include:

(1) a faster increase in investments in production facilities, which leads to higher margins;

(2) significant gains in market share, which offset a more timid global growth scenario; and

(3) continued international expansion, whether through local agreements and selective mergers and acquisitions.

By SpaceMoney

About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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