On Wednesday, UBS initiated coverage on Interpump Group SpA (IP:IM) (OTC: IPGLF) stock with a Neutral rating and set a price target of EUR41.50. The firm highlighted Interpump's diverse geographical presence, product range, and end-market exposure. Despite being a high-quality business with a strong mix of brands, the company has faced challenges this year, leading to two guidance downgrades.
Interpump Group, an Italian industrial manufacturer specializing in hydraulics and water jetting, derives approximately 75% of its sales from the hydraulics division, which has been experiencing a cyclical slowdown. The remaining 25% of sales come from the Water Jetting segment, which is considered more defensive and is performing within expectations.
The firm acknowledged Interpump's long-standing history of mergers and acquisitions, which could potentially counterbalance the low organic growth the company is currently witnessing. However, these acquisitions often come with lower margins. The market is awaiting a recovery in the underlying demand for hydraulics, which UBS does not foresee occurring for at least a few more quarters.
In conclusion, UBS views the risk/reward balance for Interpump as fair, given the temporary period of weakness it is undergoing. The firm's stance remains neutral until there is greater confidence in a demand recovery for the company's core hydraulics business.
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