On Tuesday, UBS WSP Global Inc. (WSP:CN) (OTC: WSPOF) initiated coverage with a Buy rating and set a price target of C$262.00. The firm highlighted the company’s potential to benefit from increased global infrastructure and structure investments.
Impacted by temporary factors such as ERP system costs and tax headwinds, WSP Global’s cash flow is expected to normalize over the next year or two, leading to a higher conversion rate, according to UBS.
The UBS analyst expects significant growth in free cash flow (FCF) for WSP Global by 2026, forecasting about C$1.5 billion, which represents a 53% conversion to adjusted EBITDA. This expectation exceeds the consensus estimate of C$1.3 billion and a conversion rate of 48%.
In addition, UBS forecasts margin improvement of approximately 130 basis points between 2024 and 2026, driven by operating leverage and cost optimization strategies. That’s notably higher than the consensus estimate of about 80 basis points.
WSP Global’s stock is currently trading at a discount to its three-year average EV/EBITDA multiple, UBS analysis shows. The firm expects that as WSP Global continues to report its financials, the valuation gap will close, potentially leading to a roughly 15% upside for the stock.
However, UBS also acknowledges the risks associated with the execution of M&A integration, particularly with Energy Engineers, and the possibility of macroeconomic weakness that could slow down public and private investment.
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