The war in Ukraine and the approach of winter have pushed energy prices to record levels in Europe, which could accelerate the need for energy efficiency, translating into a possible increase in demand for low voltage motors and drives (industrial motors represent around 25% of energy consumption in the European Union).
Itaú BBA’s research team believes this could sustain positive momentum for WEG (WEGE3) in the region (approximately 10% of the 5-year annual growth rate in US dollars; 15% of total revenue), thus allowing the company to gain share in a large market.
The need for energy efficiency, together with an already strong electrification trend, has resulted in a record flow of orders for most manufacturers located in Europe. Siemens and ABB, for example, have recorded historically high levels of consumption and also forecast a positive second half of 2022 and the next year with better margins.
In this sense, according to BBA analysts, WEG is well positioned to meet the growing demand. WEG has a strong presence in Europe, with 7 plants, mainly focused on EEIE (low, medium and high voltage motors). Revenues have been growing at an annual rate of 10% in the last 5 years in dollars, reaching US$ 700 million in the last 12 months (15% of WEG’s total revenue).
Analysts still see room for growth, as the market size is huge and WEG’s share is low: i) low voltage is a US$ 3.5 billion market (WEG has an 8% share); and ii) drives is a US$ 4.0 billion market (WEG has a 1% share).
WEG ESG Trends
“ESG is naturally at the heart of WEG’s investment thesis due to its exposure to topics such as electrification (including EVs), Industry 4.0, renewable energy generation and sanitation,” wrote analysts at Credit Suisse. The bank believes that WEG and its products will play a key role in helping industries and governments achieve the ambition of the 2015 Paris Agreement to reach net zero by 2050.
On Tuesday (30), WEG approved a Carbon Neutral program that defines global decarbonization goals (reduction of GHG emissions – Greenhouse Gases), which include reducing GHG emissions by 52% by 2030; and achieve net neutral emissions by 2050.
WEG joins its global peers in setting decarbonization targets. ABB and Siemens, for example, have committed to making operations carbon neutral by 2030 in scopes 1 and 2. In 2021, WEG’s scope 1 and 2 emissions totaled 151kton of CO2eq, below ABB’s 405kton of CO2eq and 595kton of CO2eq from Siemens.
Both Itaú BBA and Credit Suisse have a positive view of the company in view of the strong trend towards electrification. Therefore, BBA maintains classification outperform (performance above the market average, or equivalent to the purchase) and a target price of BRL 36, which represents an upside potential of 26.8% against the closing price on Tuesday (30) of BRL 28, 39. Credit Suisse also maintains an outperform recommendation, with a target price of BRL 43.00, which means an upside potential of 51.5%.
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