BB-BI raises target share price after 1Q24

A Weg (WEGE3) obtained a net profit of R$1.327 billion in the first quarter of 2024 (1Q24). According to BB Investimentos, Weg’s result in 1Q24 was slightly above research expectations, with emphasis on the strong performance of the Energy Generation, Transmission and Distribution (GTD) unit. That’s why BB-BI raised the company’s target price.

“Highlight of the quarter, the GTG unit had a positive performance both in Brazil and abroad. In the domestic market, projects linked to transmission and distribution network auctions boosted deliveries of large transformers and substations”, explain the analysts about the Weg’s 1Q24.

In the foreign market, analysts point out, Weg continues to benefit from structurally favorable conditions in several markets, especially those linked to the electrical grid infrastructure in the USA – and has also been performing well in India and Europe.

“Unity is the main pillar in Weg investment thesis and we had already incorporated robust numbers into our projections”, adds BB-BI.

On the other hand, the negative highlight was the performance of the Commercial Engines and Appliance (MCA) unit, also in the foreign market, with lower demand in Mexico, China and the USA.

In this way, BB-BI incorporated new operational-financial projections, especially related to the acquisition of the industrial electric motors and generators businesses of Regal Rexnord Corporation.

Based on these adjustments, the house estimates a target price of R$46.00 (previously R$40) for WEGE3 at the end of 2024 and reiterates its purchase recommendation.

To the Weg shares they closed today down 0.21%, at R$38.77.

Weg: profit rises 1.6% in 1Q24, to R$ 1.327 billion

Weg had a net profit of R$1.327 billion in the first quarter of 2024 (1Q24), a number 1.6% higher on an annual basis, according to the results report released on Thursday (2).

In the statement, Weg attributed the quarter’s results to “positive performance in operating margins and return on invested capital, as a result of the good performance of long-cycle businesses, mix of products sold and the maintenance of operational efficiency in our operations in Brazil and exterior”.

Weg’s profit before interest, taxes, depreciation and amortization (EBITDA) in 1Q24 was R$1.769 billion, representing an increase of 4.8% on an annual basis.

The margin Weg’s EBITDA, in turn, was 22%, showing an increase of 0.1 percentage point (pp) compared to the margin recorded in 1Q23. “The EBITDA margin showed an increase when compared to the same period of the previous year, mainly reflecting the maintenance of raw material costs combined with the change in the mix of products sold”, said the company.

Net operating revenue was R$8.033 billion, representing an increase of 4.4% year-on-year.

Still according to the Weg result, the return on invested capital (ROIC) was 38.9% in the quarter, growth of 7.5 percentage points compared to 1Q23 and a reduction of 0.3 percentage points compared to 4Q23. “It is important to remember that ROIC was positively impacted by the tax incentives related to the new subsidiary in Switzerland recognized in 4Q23,” wrote Weg.

Consolidated selling, general and administrative expenses totaled R$884.2 million in 1Q24, an increase of 6.9% over 1Q23 and a reduction of 5% over 4Q23.

Weg’s net financial result was negative at R$72.4 million in 1Q24, 5.8% higher than the financial losses in the same period in 2023.

In the first quarter of 2024, Weg invested R$351.5 million in modernization and expansion of production capacity, machinery and equipment and software use licenses, with 64% allocated to production units in Brazil and 36% allocated to industrial parks and other installations abroad.

“In Brazil, we continue to expand the production capacity of industrial engines and electric traction engines. Abroad, we made progress with investment in increasing the production capacity of motor and transformer factories in Mexico and the expansion of the low voltage motor factory in China”, added Weg.

Santander: Weg presented mixed results in 1Q24

In a report, Santander stated that Weg presented mixed results in 1Q24, with Ebitda 2% above the bank’s consensus.

“The company missed revenue estimates by 3-5% (-6% in the quarter), mainly affected by lower demand for short-cycle products due to the accommodation of industry inventories, following the normalization of the global supply chain”, they write analysts Lucas Barbosa, Lucas Esteves and Gabriel Tinem.

As a positive highlight, Santander highlighted the solid performance of the GTD division – generation, transmission and distribution – in Brazil and abroad (especially in the North American market), which improved the company’s product mix.

“This latest performance, combined with the continued stabilization of raw material prices and efficiency gains, helped the Ebitda margin improve to 22% (versus 21.4% in 4Q23), while the market expected a slight weakening”, he adds the bank team.

“The short-cycle electronic products segment in Brazil remains quite resilient, showing strong demand for reducers and automation equipment in different sectors”, add the analysts.

Santander has a ‘neutral’ recommendation for weg shareswith a target price of R$40.00.