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We recently roadshowed Benoit Coquart, CEO of Legrand, in the US. Within this note we offer detailed feedback on the key topics discussed during the visit. Key takeaways included... Data Centres now 15% of sales; AI supports DC market growth at 14% Data Centres now accounts for 15% of Group sales, mostly in the US. Legrand is mainly in the White space (90%). Legrand has about 10% share globally in respect of the Data Centres product areas it plays. Management sees a market outlook for Data Centre power market growth of 8-10%. Now, after the breakthroughs in AI the Firm believes that the market could grow by 14% and that there should not be any meaningful difference in growth rates between the Grey and White spaces. We note that such a rate of growth could add 300bps to the top line of the Group in 2024, supportive of the Group''s guidance for low-single digits sales growth inclusive of scope. Indian market outlook supportive too India is already 5% of Group sales and now the Firm''s 4th largest country by sales. The Indian business grew 20% in 2023. The group''s current sales exposure is: US 35% (North America 40%), France 14%, Italy 9%. Management expects that India should become larger than Italy within the next few years. Possible Trump tariff risk China is only 3% of sales, but key to the Group''s supply chain. Legrand''s Chinese COGS exposure is 22% but remains close to 30% of US COGS. Were Trump to impose a 60% tariff (as threatened), while the Firm has good pricing power, Management doesn''t believe that Legrand and its peers could pass all of that through; a new tariff of 20% could be recovered. Updating estimates; TP unchanged at EUR95 p/s We update our estimates for recent trading, guidance, and FX. Our TP is unchanged at EUR95 p/s.
Legrand Legrand SA
Legrand’s 9M figures marginally missed the company-compiled consensus on sales and organic growth, were in line on adjusted profits, and ahead on FCF. Sales growth was supported by the faster-expanding segments and pricing, whereas the adjusted operating profits were protected by pricing and cost actions. CFO was boosted by higher profits and a reduction in working capital. With these results, Legrand again revised its 2023 sales and margin targets. We continue to see the stock as attractive.
Q2 Small PandL beat, strong FCF Group Q2 sales came in -1% light of Consensus, mainly due to North and Central America, where sales missed by -4% driven itself by double digit declines in residential demand. Group Q2 adjusted EBIT came in 2.8% ahead; the margin was 100bps ahead. All three regions delivered a 100bps margin beat. Second quarter FCF of EUR482mn was 39% ahead of Consensus supported by a cash inflow from reduced working capital as well as the stronger trading profit. This was probably the standout figure in the release. Guidance upgraded to level of Cons; H2 margin set to be impacted by higher SGandA The Company has raised its FY23e guidance. Group sales growth at constant exchange rates of between +5% to +8%, including scope of consolidation of around 2% (previously +2% to +6%, including scope of consolidation of around 3%). Consensus sits at 4.3% (org. and scope combined). The FY23e adjusted operating margin (before acquisitions) is now seen at around 20.5% (previously around 20%). Consensus sits at 20.7% after acquisitions. This guidance implies an H2 margin of 18% to 18.5% (after 22.2% in H1). During the Q2 conf call analysts mainly focused their questioning on the drivers of this implied sequential margin decline. The CEO highlighted that margins are often seasonally weaker in H2 (by c 200bps). However, he acknowledged that the expected margin step down in H2 23 is bigger than this (closer to 400bps). The driver of the additional sequential fall in margins is a proactive decision by management to invest in SGandA for growth. You may recall that we suggested management would go for this strategy in our Q2 Electricals preview. However, we had thought that this might already impact H1 margins; it did not, but it is seen as a significant H2 phenomenon. Despite these headwinds to the H2 margins, the CEO did state that a higher H2 SGandA base will not preclude Legrand from achieving a 20% margin again in 2024 (Consensus models a headline...
Legrand’s H1 sales marginally missed the consensus although organic growth came in 15% short. H1 revenue growth was positive across all regions and was driven by pricing, with volumes down in the first half. Adjusted operating profit, however, was higher than expected due to positive pricing along with cost initiatives. CFO was robust due to higher profits and the effective unwinding of working capital. This also boosted FCF generation. With another strong quarter, Legrand revised its 2023 sales and margin targets.
A solid quarter Legrand delivered a solid Q1 print. Sales came in 3.5% ahead. Adjusted EBIT came in 11.5% ahead. A very strong margin in Europe of 24.9% drove a Group margin of 22.2% for a Group margin beat of over 150bps. Legrand management exercised its usually ''steady as she goes'' approach to guidance, which despite the beat, was kept unchanged. However, margins across Q2 to Q4 would have to fall fast from here for the ''around 20%'' FY23e margin guidance to now be at risk, while the low end of the +2% to +6% sales growth (inc. scope of +3%) guidance also appears cautious. Trading volumes have weakened; guidance was left unchanged The topic of trading volumes dominated the QandA part of the conf call. There were lots of analyst questions which seemed to begin from the premise that volumes are slowing or will slow down in the quarters to come. Pricing was 8% in Q1, so the Group''s volumes were slightly down in Q1. Analysts highlighted that volumes in North and Central America have weakened; volumes there are down. Guidance and margins It was noted that Company guidance implies that margins are about to start falling - on the call an analyst asked what would drive this, but we would worry less about the fact that guidance implies that margins will fall significantly in the quarters to come. As the CEO noted it is Legrand''s practice not to revisit guidance in Q1; in the past Legrand''s guidance has often appeared ''out of date'' over the summer months. Management often appears happy to run with such situations until it reports the Group''s Q3 numbers. My expectation would be that margin guidance of c. 20% will ultimately be raised around that time. Updating estimates; TP EUR92/s We update our estimates for recent trading, guidance, the latest outlook for financial charges and FX.
Legrand delivered a strong beat across the board in its Q1 figures. Organic growth was nearly twice the consensus estimate and FCF generation in the quarter was exceptionally robust. Revenue growth was supported by strong pricing as volumes were almost flat. The former, in conjunction with cost control, helped deliver an outstanding margin during the quarter. But, despite this solid start, the group left its outlook unchanged citing end-market and input inflation uncertainties for the remainder of the year.
A good end to 2022 Legrand delivered a strong Q4 print. Group sales came in 4% ahead, with organic sales growth at 8.5%, 350bps ahead of Consensus. Final quarter adjusted EBIT came in 15.6% ahead; the Group''s margin was 21.1%, 210bps ahead of the Street. For the first time ever, all three regions simultaneously printed a margin of over 20%. Fourth quarter pricing was 10%, whilst raw material inflation was 4%, leading to a favourable price/cost spread in the quarter. As is customary, the CEO was clear that pricing will increase in FY23e but highlighted that total pricing could be lower than the theoretical carryover effect after the impact of rebates and other pricing actions is taken into consideration. Given 10% price contribution to growth, volumes were down c. 1.5% YoY in Q4. Sequentially, Europe was immaterially up whilst the US showed more tangible improvement from Q3 on easing supply chain constraints and lower impact of China disruption. Group Q4 FCF was EUR419mn a 30% beat relative to Consensus, driven by a cash inflow from working capital. Guidance reassures; working capital coming back under control Legrand guides to FY23e sales growth at constant exchange rates of between +2% and +6%, including a scope of consolidation effect of around +3% and prior to the exit from the Group''s Russian assets. Implicitly Legrand is guiding to organic sales growth of -1% to 3%. Pre-results Consensus stood at -0.7%. The Company looks for an adjusted operating margin before acquisitions of around 20% of sales. The pre-results Consensus FY23e all in (with MandA) margin was 19.7%. Considering a likely MandA dilution impact of c. 0.3%, we think this guidance implied small underlying upgrades to the Street''s numbers. During the call the CFO confirmed that plans are underway to bring Legrand''s inventory/sales ratio down from its Q3''22 high of 19% back towards its historical average of 13% to 14%. The move to 16% in Q4 was material but the pace will now...
Legrand’s 2022 figures delivered a decent beat over consensus and our estimates. Organic growth was above the company’s guidance with pricing again being the key driver. Profitability was strong due to good cost and price management. CFO and FCF also grew yoy. The board will propose a dividend of €1.90 and commence a buy-back programme of upto €500m over 18 months. Lastly, Legrand’s 2023 outlook is slightly ahead of consensus and we remain confident in the company’s ability to deliver.
Sales beat, but margin and FCF light Legrand Q3 sales came in 2.6% ahead of Consensus, thanks to stronger organic sales growth (8.4% vs. Cons at 7.3%) and a bigger FX tailwind. North America was the standout; the US was still growing at 10.6% in Q3; Rest of the World growth was more muted, as sales declined in both China and Brazil. The Group adjusted EBIT margin came in 46bps light, impacted by raw materials and components inflation of 11%. FCF missed by 19%. Guidance unchanged; low end appears far too bearish... Guidance for FY22e was unchanged, such that it now implies a very wide range of outcomes for Q4. One could argue that this late into the year, management should have narrowed the range. During the conference call, the Company assumes a theoretical price contribution in Q4 of 10% YoY, therefore FY22e guidance implies that Q4 volumes will be down -15% at the low end of the range and -3% at the high end (midpoint -9%). Both ends of the range imply YoY volume declines that are worse than we saw in Q3. Much worse at the low end of the range - an outcome which we do not believe is a credible scenario. The CEO stated that they are shooting for the high end of the guidance in Q4. ...high end appears to imply a worse 2023 than Consensus models By our estimation, at the high end of Legrand''s FY23e guidance, a sequential stabilisation in early 2023, following on from a -3% volume decline in Q4 22 would result in a volume decline of c. -6% next year. Consensus organic sales growth for 2023 sits around c. 0%. We doubt that will be achievable if volumes continue to sequentially weaken next year. Our FY23e organic sales growth forecast (price and volume) now sits at -1.9%. Updating estimates; TP at EUR90/s We update our estimates for recent trading and latest FX. We cut our target price to EUR90/s.
Legrand’s 9M results slightly beat the consensus estimates on most figures. The organic sales growth was again above the group’s 2022 guidance. Pricing was the key driver of organic growth in Q3 as volumes declined. The company maintained its focus on cost management but margins faced some pressure in this quarter. Good organic growth was seen across all geographies. CFO increased yoy but FCF was lower due to higher levels of working capital. Lastly, Legrand confirmed its 2022 outlook.
Legrand again beat consensus estimates across all metrics. Organic sales growth was above the group’s guidance with margins improving sequentially. Pricing effects were even more evident in this quarter with volumes growing only infinitesimally. The former along with good cost control helped Legrand to evade the margin headwinds. Strong growth was seen across all geographies. CFO and FCF were lower on account of higher working capital requirements. Given this strong result, Legrand raised its organic revenue growth target for 2022.
Legrand delivered a solid consensus beat across the board. Organic sales growth well above the group’s guidance and margins were also slightly better than expected. The group upheld its pricing supremacy and protected margins despite the ongoing cost inflation and supply-chain problems. All geographies reported good growth with Europe and the Americas delivering a robust performance. Both CFO and FCF were lower due to higher working capital investments. Following the release, the company confirmed its FY22 outlook.
Legrand’s results were in line with consensus but better than our expectations. Organic sales growth was above the group’s guidance and margins came in at the higher-end of the range. All geographies saw strong growth with Europe being the strongest. The ongoing supply-chain issues and price inflation continued but Legrand was able to convincingly adapt its operations. The group also gave a better-than-expected FY22 outlook on revenue growth and proposed a dividend of €1.65, up 16.2% yoy.
Although Legrand’s Q3 numbers were slightly better than our expectations, they were very much in line with consensus. Sales growth was seen across all geographies with Europe again being the strongest (yoy growth). The Rest of the World did well too. Supply-chain issues were present in Q3 and are expected to escalate in Q4. With this release, the group also provided a more precise FY21 guidance that was slightly better than our forecasts.
Legrand’s first-half results were above consensus expectations and much better than our estimates across the board. This strong growth was visible across all geographies with Europe being particularly strong. The company also made two acquisitions in this quarter. Net income and FCF also grew strongly. Following such a strong showing, the group has revised its outlook for the full-year while keeping the margin target largely unchanged.
Legrand’s Q1 results beat both our and consensus expectations, largely fitting into the pattern of Q1 beats so far. All geographic regions registered growth with Europe and APAC showing relatively stronger growth rates. In terms of end-markets, residential and datacentres witnessed strong demand, whereas non-residential still showed mixed developments. Profitability was strong, which also resulted in good FCF generation. Given this result, the group raised its FY21 outlook, albeit not by much. Nevertheless, we welcome this development.
Legrand’s Q4 and FY20 results were in line with our as well as consensus estimates. While Q3 saw increased activity, Q4 represented a more docile state of affairs. Barring the FCF generation for the year, there were no surprises or letdowns. This also applies to the group’s FY21 outlook. The group proposed a dividend of €1.42 per share. Going forward, Legrand will continue to target growth through acquisitions and accelerate digitisation within the group.
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