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Broker tips: Weir, Assura

By Iain Gilbert

Date: Wednesday 22 May 2024

Broker tips: Weir, Assura

(Sharecast News) - Berenberg re-initiated coverage of Weir Group on Wednesday with a 'buy' rating and 2,600p price target as it argued the engineering firm is a "structural winner".
The analysts noted that the stock trades on 18x 2024E price-to-earnings and 12.9x EV/EBIT, which was a 10% premium to the broader industrials sector and in line with broader mining equipment peers.

"However, we believe that Weir's focused strategy, aftermarket-heavy business model, attractive financial targets and alignment to long-term structural growth justify a further rerating and so we re-initiate coverage with a buy rating," it said.

The German bank forecasts 4% earnings per share growth for 2024E, rising to 11% in 2025, supported by mid-single-digit organic growth and cost savings.

"We are slightly below consensus for 2024/25 but ahead for 2026 as we expect rising mining capex to underpin growth in the group's installed base and drive increasing aftermarket revenue, reinforcing the group's financial targets of mid- to high-single-digit through-cycle organic growth and 20% operating margins," it said.

Berenberg noted that Weir has more than 70% exposure to the mining industry, where mineral demand is expected to grow at 3-5% per year to 2050, driven by electrification and energy-transition themes, and it expects Weir to outperform this trajectory.

"The substantial anticipated capex for new projects, particularly copper (with an additional 670kt per annum required in 2026-34), provides a tailwind in the medium term to expand Weir's installed base, while the miners' continued focus on energy efficiency and sustainability also drives underlying demand for equipment upgrades," the bank said. "Weir has market-leading positions in a number of product sets throughout both its Minerals and ESCO divisions, including its Warman pump brand, which we believe has over 60% market share.

Jefferies downgraded specialist UK property developer and investor Assura to 'hold' from 'buy', while its price target was reduced to 45.0p from 52.0p.

The downgrade follows Assura's announcement on Tuesday that it had agreed to a £250m joint venture with Universities Superannuation Scheme to support investment in essential NHS infrastructure. The primary care specialist also posted a 3.8% rise in net rental income for the year to March to £143.3m.

In a note published on Wednesday, Jefferies said: "Loan to value is 43% with the new joint venture, but more action is needed to allay the risk of a credit cut.

"Options include an equity injection - shares trade at a 13% discount to net asset value - asset disposals (earnings dilutive by around 300-400bps) and curtail development (Assura is being priced out).

"Our price target is cut to 45.0p, factoring in the dilutive impacted of [estimated] £200.0m per annum high yield/low growth asset sales to degear by 30%, but the 7.8% dividend yield risks being uncovered."


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